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Pricing CIR Yield Options by Conditional Moment Matching

Author

Listed:
  • Adrian Prayoga

    (Nanyang Technological University)

  • Nicolas Privault

    (Nanyang Technological University)

Abstract

We propose an approximation scheme for the pricing of yield options in the CIR model using conditional moment matching based on the gamma and lognormal distributions. This method is fast and simple to implement, and it shows a high degree of accuracy without being subject to the numerical instabilities that can be encountered with more sophisticated approaches.

Suggested Citation

  • Adrian Prayoga & Nicolas Privault, 2017. "Pricing CIR Yield Options by Conditional Moment Matching," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 24(1), pages 19-38, March.
    • Handle: RePEc:kap:apfinm:v:24:y:2017:i:1:d:10.1007_s10690-017-9222-5
    DOI: 10.1007/s10690-017-9222-5
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    References listed on IDEAS

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    1. Martin Forde & Antoine Jacquier, 2010. "Robust Approximations for Pricing Asian Options and Volatility Swaps Under Stochastic Volatility," Applied Mathematical Finance, Taylor & Francis Journals, vol. 17(3), pages 241-259.
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    Cited by:

    1. F. Antonelli & A. Ramponi & S. Scarlatti, 2021. "CVA and vulnerable options pricing by correlation expansions," Annals of Operations Research, Springer, vol. 299(1), pages 401-427, April.

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