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Pricing Eurodollar futures options with the Ho and Lee and Black, Derman, and Toy models: An empirical comparison

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  • Roswell E. Mathis III
  • Gerald O. Bierwag

Abstract

This article compares empirically the Ho and Lee (1986) and Black, Derman, and Toy (1990) discrete‐time debt option pricing models in the pricing of Eurodollar futures options over the period from March 1997 through February 1998 using daily data. The results indicate that both models performed well. The average absolute pricing errors over the sample period were less than one tick (0.01) in every case. The Black, Derman, and Toy model slightly outperformed the Ho and Lee model in the pricing of in‐the‐money call options and out‐of‐the‐money put options over the period studied. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 291–306, 1999

Suggested Citation

  • Roswell E. Mathis III & Gerald O. Bierwag, 1999. "Pricing Eurodollar futures options with the Ho and Lee and Black, Derman, and Toy models: An empirical comparison," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(3), pages 291-306, May.
    • Handle: RePEc:wly:jfutmk:v:19:y:1999:i:3:p:291-306
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    Cited by:

    1. Frank Skinner & Benton E. Gup & Michael Ioannides & Doowoo Nam, 2001. "Modelling Retail Deposit Spreads in the UK," ICMA Centre Discussion Papers in Finance icma-dp2001-02, Henley Business School, University of Reading.

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