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On pricing of interest rate derivatives

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  • T. Di Matteo
  • M. Airoldi
  • E. Scalas

Abstract

At present, there is an explosion of practical interest in the pricing of interest rate (IR) derivatives. Textbook pricing methods do not take into account the leptokurticity of the underlying IR process. In this paper, such a leptokurtic behaviour is illustrated using LIBOR data, and a possible martingale pricing scheme is discussed.

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  • T. Di Matteo & M. Airoldi & E. Scalas, 2004. "On pricing of interest rate derivatives," Papers cond-mat/0401445, arXiv.org.
    • Handle: RePEc:arx:papers:cond-mat/0401445
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    1. Pagan, A.R. & Hall, A.D. & Martin, V., 1995. "Modelling the Term Structure," Papers 284, Australian National University - Department of Economics.
    2. Gençay, Ramazan & Dacorogna, Michel & Muller, Ulrich A. & Pictet, Olivier & Olsen, Richard, 2001. "An Introduction to High-Frequency Finance," Elsevier Monographs, Elsevier, edition 1, number 9780122796715.
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    Cited by:

    1. Covarrubias, Guillermo & Ewing, Bradley T. & Hein, Scott E. & Thompson, Mark A., 2006. "Modeling volatility changes in the 10-year Treasury," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 369(2), pages 737-744.
    2. Bueno-Guerrero, Alberto, 2022. "A Quantum Mechanics for interest rate derivatives markets," Chaos, Solitons & Fractals, Elsevier, vol. 155(C).

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