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| Author: | Miltersen, K. R. Sandmann, K. Sondermann, D. |
| Title: | Closed form solutions for term structure derivatives with log-normal interest rates. |
| Journal: | Journal of Finance
1997 : MAR, VOL. 52:1, p. 409-430 |
| Index terms: | DERIVATIVE SECURITIES INTEREST RATES BONDS |
| Language: | eng |
| Abstract: | The authors derive a unified model that gives closed form solutions for caps and floors written on interest rates as well as puts and calls written on zero-coupon bonds. The crucial assumption is that simple interest rates over a fixed finite period that matches the contract, which they want to price, are log-normally distributed. Moreover, this assumption is shown to be consistent with the Heath- Jarrow-Morton model for a specific choice of volatility. |
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