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A simple solution for sticky cap and sticky floor

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  • Roberto Baviera

Abstract

We show an analytical approach to sticky cap and sticky floor according to the Bond Market Model, a recently introduced version of the multi-factor Gaussian Heath-Jarrow-Morton model that is particularly easy to manage and calibrate. This solution allows having a comprehensive approach even for this class of Interest Rates' exotic derivatives that are fully path-dependent.

Suggested Citation

  • Roberto Baviera, 2007. "A simple solution for sticky cap and sticky floor," Quantitative Finance, Taylor & Francis Journals, vol. 7(3), pages 285-287.
    • Handle: RePEc:taf:quantf:v:7:y:2007:i:3:p:285-287
    DOI: 10.1080/14697680600999377
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    References listed on IDEAS

    as
    1. Santa-Clara, Pedro & Sornette, Didier, 2001. "The Dynamics of the Forward Interest Rate Curve with Stochastic String Shocks," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 149-185.
    2. David Heath & Robert Jarrow & Andrew Morton, 2008. "Bond Pricing And The Term Structure Of Interest Rates: A New Methodology For Contingent Claims Valuation," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 13, pages 277-305, World Scientific Publishing Co. Pte. Ltd..
    3. Roberto Baviera, 2003. "Vol-Bond: an analytical solution," Quantitative Finance, Taylor & Francis Journals, vol. 3(4), pages 285-287.
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