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Interest rates in quantum finance: Caps, swaptions and bond options

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  • Baaquie, Belal E.

Abstract

The prices of the main interest rate options in the financial markets, derived from the Libor (London Interbank Overnight Rate), are studied in the quantum finance model of interest rates. The option prices show new features for the Libor Market Model arising from the fact that, in the quantum finance formulation, all the different Libor payments are coupled and (imperfectly) correlated.

Suggested Citation

  • Baaquie, Belal E., 2010. "Interest rates in quantum finance: Caps, swaptions and bond options," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(2), pages 296-314.
    • Handle: RePEc:eee:phsmap:v:389:y:2010:i:2:p:296-314
    DOI: 10.1016/j.physa.2009.09.031
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    References listed on IDEAS

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    1. Farshid Jamshidian, 1997. "LIBOR and swap market models and measures (*)," Finance and Stochastics, Springer, vol. 1(4), pages 293-330.
    2. Baaquie, Belal E. & Yang, Cao, 2009. "Empirical analysis of quantum finance interest rates models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(13), pages 2666-2681.
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    Cited by:

    1. Baaquie, Belal E. & Tang, Pan, 2012. "Simulation of nonlinear interest rates in quantum finance: Libor Market Model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(4), pages 1287-1308.
    2. Bueno-Guerrero, Alberto & Moreno, Manuel & Navas, Javier F., 2020. "Valuation of caps and swaptions under a stochastic string model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 559(C).

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