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Path dependent options on yields in the affine term structure model

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Abstract.

We give analytical pricing formulae for path dependent options on yields in the framework of the affine term structure model. More precisely, European call options such as the arithmetic average call, the call on maximum and the lookback call are examined. For the two last options approximate formulae using the law of hitting times of an Ornstein-Uhlenbeck process are proposed. Numerical implementation is also briefly discussed and results are given in the case of the arithmetic average option.

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Authors and Affiliations

  1. Banque Nationale de Paris, Université Paris VII and CREST Laboratoire de Finance Assurance, Bâtiment Malakoff 2 – Timbre J320, 15 Boulevard Gabriel Péri, F-92245 Malakoff Cedex, France , , , , , , FR

    Boris Leblanc

  2. Institut d'Administration et de Gestion and Département des Sciences Economiques, Université Catholique de Louvain, 3 place Montesquieu, B-1348 Louvain-la-Neuve, Belgique , , , , , , BE

    Olivier Scaillet

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  1. Boris Leblanc
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  2. Olivier Scaillet
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Manuscript received: September 1996; final version received: October 1997

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Leblanc, B., Scaillet, O. Path dependent options on yields in the affine term structure model. Finance Stochast 2, 349–367 (1998). https://doi.org/10.1007/s007800050045

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  • DOI: https://doi.org/10.1007/s007800050045

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