IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-02313167.html
   My bibliography  Save this paper

The Valuation of Interest Rate Digital Options and Range Notes Revisited

Author

Listed:
  • Patrick Navatte

    (EM - EMLyon Business School)

  • François Quittard-Pinon

Abstract

The aim of this paper is to value interest rate structured products in a simpler and more intuitive way than Turnbull (1995). Considering some assumptions with respect to the evolution of the term structure of interest rates, the price of a European interest rate digital call option is given. Recall it is a contract designed to pay one dollar at maturity if a reference interest rate is above a prespecified level (the strike), and zero in all the others cases. Combining two options of this type enables us to value a European range digital option. Then using a one factor linear gaussian model and the new well-known change of numeraire approach, a closed-form formula is found to value range notes which pay at the end of each defined period, a sum equal to a prespecified interest rate times the number of days the reference interest rate lies inside a corridor.

Suggested Citation

  • Patrick Navatte & François Quittard-Pinon, 1999. "The Valuation of Interest Rate Digital Options and Range Notes Revisited," Post-Print hal-02313167, HAL.
    • Handle: RePEc:hal:journl:hal-02313167
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ting‐Pin Wu & Son‐Nan Chen, 2008. "Valuation of floating range notes in a LIBOR market model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(7), pages 697-710, July.
    2. Jang, Bong-Gyu & Yoon, Ji Hee, 2010. "Analytic valuation formulas for range notes and an affine term structure model with jump risks," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2132-2145, September.
    3. João Pedro Vidal Nunes, 2004. "MultiFactor Valuation of Floating Range Notes," Mathematical Finance, Wiley Blackwell, vol. 14(1), pages 79-97, January.
    4. Ping Wu & Robert J. Elliott, 2016. "Valuation of CMS range notes in a multifactor LIBOR market model," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1-19, March.
    5. Chiarella, Carl & Da Fonseca, José & Grasselli, Martino, 2014. "Pricing range notes within Wishart affine models," Insurance: Mathematics and Economics, Elsevier, vol. 58(C), pages 193-203.
    6. Ping Wu & Robert J. Elliott, 2017. "Valuation of certain CMS spreads," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 31(4), pages 445-467, November.
    7. Baaquie, Belal E. & Du, Xin & Tang, Pan & Cao, Yang, 2014. "Pricing of range accrual swap in the quantum finance Libor Market Model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 401(C), pages 182-200.
    8. Bong-Gyu Jang & Kum-Hwan Roh, 2009. "Valuing qualitative options with stochastic volatility," Quantitative Finance, Taylor & Francis Journals, vol. 9(7), pages 819-825.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-02313167. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.