Working Paper

Interest rate option pricing with volatility humps

Abstract: A development of a simple model in which interest rate claims are priced in the Heath-Jarrow-Morton paradigm and so incorporate full information on the term structure. The volatility structure for forward rates is humped and includes as a special case the exponentially dampened volatility structure used in the generalized Vasicek model.

Keywords: Interest rates; options;

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers (Old Series)

Publication Date: 1997

Number: 9714