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RecordNumber
2255
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Author
CHESNEY, MAR
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Crop_Body
MARC CHESNEY, ROBERTJ. ELLIOTT, RAJNAG IBSON
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Title of Article
ANALYTICAL SOLUTIONS FOR THE PRICING OF AMERICAN BOND AND YIELD OPTIONS
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Title Of Journal
Mathematical Finance
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PublishInfo
Oxford :Blackwell Publishers
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Publication Year
1993
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Volum
3
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Issue Number
3
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Page
277-294
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Keywords
American bond option , Bessel processes , early exercise premium , free boundary approach , optimal stopping , term structure of interest rates , yield option
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Abstract
In this paper we use the Cox, Ingersoll, and Ross (1985b) single-factor, term structure model and extend it to the pricing of American default-free bond puts. We provide a quasi-analytical formula for these option prices based on recently established mathematical results for Bessel bridges, coupled with the optimal stopping time method. We extend our results to another interest rate contingent claim and provide a quasi-analytical solution for American yield option prices which illustrates the flexibility of our framework.
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URL
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