Download or read book The Valuation of American Options on Bonds written by T. S. Ho and published by . This book was released on 1997 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The valuation of American-style bond options involves two important aspects that need to be modeled carefully. First, stochastic interest rates influence the volatility of the price of the bond, the underlying asset, in a complex fashion as the bond approaches maturity, and hence, the incremental value of the early exercise (American) feature. Second, the early exercise decision for such options is affected by the term structure of interest rates on future dates, since the live value of the claim on each future date depends on the discount rates on that date. These two aspects are modeling in this paper. The paper analyzes the value of American options on bonds using a generalization of the Geske-Johnson (1984) technique. The method uses as inputs the valuation of European options, and options with multiple exercise dates. It is proved that a risk-neutral valuation relationship along the lines of the Black-Scholes (1973) model holds for options exercisable on multiple dates, even under stochastic interest rates, when the price of the underlying asset is lognormally distributed. The proposed computational method uses the maximized value of these options, where the maximization is over all possible exercise dates. The value of the American option is then computed by Richardson extrapolation. The volatility of the underlying default-free bond is modeled using a two-factor model, with a short-term and a long-term interest rate factor. The paper reports the results of simulations of American option values and show how they vary with the key parameter inputs, such as the maturity of the bond, its volatility, and the option strike price.

Download or read book The Valuation of American Style Options on Bonds written by T.S. Ho and published by . This book was released on 2008 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We value American options on bonds using the Geske-Johnsan (1992). The method requires the valuation of European options with two and three possible exercise dates.It is shown that a risk-neutral valuation relationship along the lines of Black-Scholes (1973) model holds for option exercisable on multiple date, even under stochastic interest rates, when the price of the underlying asset is longormally distributed. The proposed computational procdure uses the maxmized value of these options, where the maximization is over all prossible exercise dates. The value of American option is then computed by Richardson extrapolation. The volatility of the underlying default-free bond is modelled using a two-factor model, with a short-term and a long-term interest rate factor, where the short-term interest rate is mean-reverting. Simulations show that penny accuracy is achieved with this computationally efficient method.

Download or read book Valuation of American Bond Options written by G. George Yu and published by . This book was released on 1993 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Valuation of Options on Bonds with Default Risk written by Riadh Belhaj and published by . This book was released on 2016 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: N this paper we present a model for valuing European and American options, which incorporates both default and interest rate risks. We develop a framework that permits evaluation of three kinds of options: (i) options issued by default-free counterparties on risky bonds, (ii) options issued by risky counterparties on default-free bonds and (iii) options issued by risky counterparties on risky bonds -- a case where default risk enters at both levels. We show that the price of a put option on a risky discount bond is hump shaped for a European put and monotone increasing for an American put. We also find that the price impact of default risk is less for an American put option than for a European one.

Download or read book Financial Options written by Stephen Figlewski and published by McGraw-Hill Companies. This book was released on 1990 with total page 596 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Options links option theory with practical applications. Readers will find this book's approach simple to follow, with information organized for easy access that includes: institutional and theoretical frameworks for understanding options and option markets; how to apply option pricing models to specific types of markets; the numerical methods that must be applied to solve many option valuation problems.

Download or read book A Theoretical and Empirical Study of Options on Default Free Coupon Bonds written by Thomas James Finucane and published by . This book was released on 1986 with total page 486 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Valuation of the American Premium in the Foreign Currency Options Market written by Philippe Jorion and published by . This book was released on 1987 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book American Style Derivatives written by Jerome Detemple and published by CRC Press. This book was released on 2005-12-09 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt: Focusing on recent developments in the field, American-Style Derivatives provides an extensive treatment of option pricing with emphasis on the valuation of American options on dividend-paying assets. This book reviews valuation principles for European contingent claims and extends the analysis to American contingent claims. It presents basic valuation principles for American options including barrier, capped, and multi-asset options. It also reviews numerical methods for option pricing and compares their relative performance. Ideal for students and researchers in quantitative finance, this material is accessible to those with a background in stochastic processes or derivative securities.

Download or read book The Valuation of American Options on Futures Contracts for Debt written by Andrew C. Body and published by . This book was released on 1988 with total page 130 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Pricing Model for American Options with Stochastic Interest Rates written by Ton Vorst and published by . This book was released on 2008 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we develop a new method to value American stock options with stochastic interest rates. We construct a binomial tree for the stock price divided by the price of the zero coupon bond that matures at the maturity date of the option. In fact, we construct a tree for the so-called forward risk adjusted measure. In each node of the tree the quotient of the stock price and bond price is constant and there are combinations of stock and bond prices for which immediate exercise is optimal and other combinations for which this is not the case. We derive for each node in the tree an analytic expression for the expected immediate exercise premium conditional on this quotient of stock and bond prices. This immediate exercise premium is added to the value that is derived from the familiar backward procedure. Both European and American option prices depend on the correlation between the interest rate process and the stock price process. It is interesting to see that with increasing correlation between the interest rate process and the stock price process, and hence a decreasing correlation between bond and stock prices, the values of European options increase, while the values of the early exercise premium decrease. For American options this might result in a non-monotonic relation between the correlation coefficient and the option price. Furthermore, there is evidence that the early exercise premium due to stochastic interest rates is much larger than established before by other researchers. Finally, we also consider the influence of the shape of the initial term structure.

Download or read book The Valuation of American Options with Stochastic Interest Rates written by Anthony Saunders and published by . This book was released on 1991 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Options Markets written by John C. Cox and published by Prentice Hall. This book was released on 1985 with total page 518 pages. Available in PDF, EPUB and Kindle. Book excerpt: Includes the first published detailed description of option exchange operations, the first published treatment using only elementary mathematics and the first step-by-step procedure for implementing the Black-Scholes formula in actual trading.

Download or read book Bond and Money Markets written by Moorad Choudhry and published by Butterworth-Heinemann. This book was released on 2003-07-04 with total page 1152 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Bond and Money Markets is an invaluable reference to all aspects of fixed income markets and instruments. It is highly regarded as an introduction and an advanced text for professionals and graduate students.Features comprehensive coverage of: * Government and Corporate bonds, Eurobonds, callable bonds, convertibles * Asset-backed bonds including mortgages and CDOs * Derivative instruments including futures, swaps, options, structured products* Interest-rate risk, duration analysis, convexity, and the convexity bias * The money markets, repo markets, basis trading, and asset/liability management * Term structure models, estimating and interpreting the yield curve * Portfolio management and strategies,total return framework, constructing bond indices * A stand alone reference book on interest rate swaps, the money markets, financial market mathematics, interest-rate futures and technical analysis * Includes introductory coverage of very specialised topics (for which one previously required several texts) such as VaR, Asset & liability management and credit derivatives * Combines accessible style with advanced level topics

Download or read book The Valuation of Interest Rate Derivative Securities written by Jeroen F. J. De Munnik and published by Routledge. This book was released on 2005-10-18 with total page 163 pages. Available in PDF, EPUB and Kindle. Book excerpt: The increased volatility of interest rates during recent years and the corresponding introduction of a variety of interest rate derivative securities like bond options, futures and embedded options in mortgages, underlines the need for a comprehensive financial theory to determine values of fixed income instruments and derivative securities consistently. This book provides: * a detailed overview and classification of the different approaches to value interest rate dependent securities * a comparison of the numerical approaches to value complex securities * an empirical examination for the Dutch Fixed Income Market of some well-known interest rate models which demonstrates recent improvements to describe interest rate movements in relation to contingent claim valuation.

Download or read book Theory of Rational Option Pricing written by Robert C Merton and published by Legare Street Press. This book was released on 2022-10-27 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work has been selected by scholars as being culturally important, and is part of the knowledge base of civilization as we know it. This work is in the "public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant.

Download or read book Real Options Theory written by Jeffrey J. Reuer and published by Emerald Group Publishing. This book was released on 2007-07-05 with total page 520 pages. Available in PDF, EPUB and Kindle. Book excerpt: Examines the ways in which real options theory can contribute to strategic management. This volume offers conceptual pieces that trace out pathways for the theory to move forward and presents research on the implications of real options for strategic investment, organization, and firm performance.

Download or read book Derivatives and Internal Models written by H. Deutsch and published by Springer. This book was released on 2009-06-24 with total page 766 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a thorough introduction to pricing and risk management of modern financial instruments formulated in precise mathematical language, covering all relevant topics with such a depth of detail that readers are enabled to literally develop their own pricing and risk tools. Accompanying website with hundreds of real world examples.