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Publication Detailed Description
Multifactor and analytical valuation of treasury bond futures with an embedded quality option
Journal Title
Journal of Futures Markets
Year (definitive publication)
2007
Language
English
Country
United States of America
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Web of Science®
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Abstract
A closed-form pricing solution is proposed for the quality option embedded in Treasury bond futures contracts, under a multifactor and D. Heath, R. Jarrow, and A. Morton (1992) Gaussian framework. Such an analytical solution can be obtained through a conditioning approximation, in the sense of M. Curran (1994) and L. Rogers and Z. Shi (1995), or via a rank 1 approximation, following A. Brace and M. Musiela (1994). Monte Carlo simulations show that both approximations are extremely accurate and easy to calculate.
Acknowledgements
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Keywords
Fields of Science and Technology Classification
- Economics and Business - Social Sciences
