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Implied option prices from the continuous time CKLS interest rate model: an application to the UK

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  • K. Ben Nowman
  • Ghulam Sorwar

Abstract

In this paper a numerical procedure recently applied in finance is used to compute implied bond and contingent claim prices starting from the CKLS interest rate model. The CKLS model is estimated using a range of maturities from the UK interbank market including the one week and one, two, three, six and twelve month rates. It is found that the implied default free bond prices and contingent claim prices vary across models and maturities for the UK.

Suggested Citation

  • K. Ben Nowman & Ghulam Sorwar, 2003. "Implied option prices from the continuous time CKLS interest rate model: an application to the UK," Applied Financial Economics, Taylor & Francis Journals, vol. 13(3), pages 191-197.
    • Handle: RePEc:taf:apfiec:v:13:y:2003:i:3:p:191-197
    DOI: 10.1080/09603100110112041
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    Cited by:

    1. Somayeh Kokabisaghi & Eric J. Pauwels & Katrien Van Meulder & André B. Dorsman, 2018. "Are These Shocks for Real? Sensitivity Analysis of the Significance of the Wavelet Response to Some CKLS Processes," IJFS, MDPI, vol. 6(3), pages 1-12, September.
    2. Ghulam Sorwar, 2005. "Implied derivative security prices based two-factor interest model: a UK application," Applied Financial Economics, Taylor & Francis Journals, vol. 15(10), pages 739-744.

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