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Interest rate options valuation under incomplete information

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  • Constantin Mellios

Abstract

This paper aims at examining the term structure of interest rates and European-type interest rate option prices in a partially observable economy. It extends the existing literature on incomplete information by developing a one-factor model which is consistent with the initial yield curve and by providing closed-form solutions for discount bonds and different kinds of options. The model of this paper encompasses Hull and White’s (1990). Moreover, through a numerical example, these two models are compared and the impact of incomplete information on option prices is analysed. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Constantin Mellios, 2007. "Interest rate options valuation under incomplete information," Annals of Operations Research, Springer, vol. 151(1), pages 99-117, April.
    • Handle: RePEc:spr:annopr:v:151:y:2007:i:1:p:99-117:10.1007/s10479-006-0128-2
    DOI: 10.1007/s10479-006-0128-2
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    Cited by:

    1. Tarik Driouchi & Lenos Trigeorgis & Raymond H. Y. So, 2018. "Option implied ambiguity and its information content: Evidence from the subprime crisis," Annals of Operations Research, Springer, vol. 262(2), pages 463-491, March.
    2. Anh Ngoc Lai & Constantin Mellios, 2016. "Valuation of commodity derivatives with an unobservable convenience yield," Post-Print halshs-01183166, HAL.

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