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Implied derivative security prices based two-factor interest model: a UK application

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  • Ghulam Sorwar

Abstract

In this paper the extended Box Method recently introduced to finance is used to value bond and option prices based on the two-factor CKLS interest rate model. The two-factor CKLS model is estimated using the one-year Eurodollar rate for the UK as the long rate and either the one-week, or one-month Euro dollar rate for the UK as the short rate. Overall, it is found that both and option prices are sensitive to the model used.

Suggested Citation

  • 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.
    • Handle: RePEc:taf:apfiec:v:15:y:2005:i:10:p:739-744
    DOI: 10.1080/0960310042000339730
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