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Interest Rate Futures Options and Interest Rate Options

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  • Ho, Thomas S Y
  • Lee, Sang Bin

Abstract

This paper derives pricing models of interest rate options and interest rate futures options. The models utilize the arbitrage-free interest rate movements model of Ho and Lee. In their model, they take the initial term structures as given, and for the subsequent periods, they only require that the bond prices move relative to each other in an arbitrage-free manner. Viewing the interest rate options as contingent claims to the underlying bonds, we derive the closed-form solutions to the options. Copyright 1990 by MIT Press.

Suggested Citation

  • Ho, Thomas S Y & Lee, Sang Bin, 1990. "Interest Rate Futures Options and Interest Rate Options," The Financial Review, Eastern Finance Association, vol. 25(3), pages 345-370, August.
    • Handle: RePEc:bla:finrev:v:25:y:1990:i:3:p:345-70
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    Cited by:

    1. Vladislav Kargin & Alexei Onatski, 2004. "Dynamics of Interest Rate Curve by Functional Auto-Regression," Macroeconomics 0404008, University Library of Munich, Germany, revised 28 Oct 2004.
    2. Breeden, Douglas T. & Gilkeson, James H., 1997. "A path-dependent approach to security valuation with application to interest rate contingent claims," Journal of Banking & Finance, Elsevier, vol. 21(4), pages 541-562, April.
    3. Gilkeson, James H. & Porter, Gary E. & Smith, Stanley D., 2000. "The impact of the early withdrawal option on time deposit pricing," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(1), pages 107-120.
    4. David C. Ling, 1993. "Mortgage‐Backed Futures and Options," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(1), pages 47-67, March.
    5. Les Gulko, 2007. "A test of the beta model on Eurodollar futures options," Quantitative Finance, Taylor & Francis Journals, vol. 7(5), pages 497-505.

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