Pricing Interest-Rate-Derivative Securities

@article{Hull1990PricingIS,
  title={Pricing Interest-Rate-Derivative Securities},
  author={John Hull and Alan G. White},
  journal={Review of Financial Studies},
  year={1990},
  volume={3},
  pages={573-592}
}
  • J. Hull, A. White
  • Published 1 October 1990
  • Economics
  • Review of Financial Studies
This article shows that the one-state-variable interest-rate models of Vasicek (1977) and Cox, Ingersoll, and Ross (1985b) can be extended so that they are consistent with both the current term structure of interest rates and either the current volatilities of all spot interest rates or the current volatilities of all forward interest rates. The extended Vasicek model is shown to be very tractable analytically. The article compares option prices obtained using the extended Vasicek model with… Expand

Tables from this paper

Multiscale Stochastic Volatility for Equity, Interest Rate, and Credit Derivatives: Interest Rate Models
In this article we will describe some of the main developments in interest-rate modelling since Black & Scholes’ (1973) and Merton’s (1973) original articles on the pricing of equity derivatives. InExpand
An Introduction to Modern Pricing of Interest Rate Derivatives
This thesis studies interest rates (even negative), interest rate derivatives and term structure of interest rates. We review the different types of interest rates and go through the evaluation of aExpand
A Term Structure Model and the Pricing of Interest Rate Derivative
The paper developes a general arbitrage free model for the term structure of interest rates. The principal model is formulated in a discrete time structure. It differs substantially from theExpand
A Theory of the Nominal Term Structure of Interest Rates
A model of the nominal term structure of interest rates is developed that has a positive and stationary process for the interest rate and delivers closed-form expressions for the prices of discountExpand
A YIELD-FACTOR MODEL OF INTEREST RATES
This paper presents a consistent and arbitrage-free multifactor model of the term structure of interest rates in which yields at selected fixed maturities follow a parametric muitivariate MarkovExpand
Term Structure Models for Interest Rates
In the Black-Scholes model, it was assumed that the interest rate is a constant or a deterministic function. For short-dated options on stock-like assets, it is an acceptable approximation. However,Expand
A New Approach to the Valuation of Interest Rate Derivatives: Arrow-Debreu Prices Implicit in the Term Structure of Interest Rates
In a complete, arbitrage-free securities market, the value of a discount bond is modeled in terms of the pricing kernel and the transition density function of the spot interest rate process. TheExpand
Pricing Interest Rate Options in a Two-Factor Cox–Ingersoll–Ross model of the Term Structure
Solutions are presented for prices on interest rate options in a two-factor version of the Cox-Ingersoll-Ross model of the term structure. Specific solutions are developed for caps on floatingExpand
An Empirical Comparison of Alternative Models of the Short-Term Interest Rate
The authors estimate and compare a variety of continuous-time models of the short-term riskless rate using the Generalized Method of Moments. The authors find that the most successful models inExpand
Long-term interest rates and consol bond valuation
TLDR
A Gaussian three-factor model of the term structure of interest rates which is Markov and time-homogeneous is presented which is particularly useful in forward simulations for applications in long-term swap and bond pricing, risk management and portfolio optimization. Expand
...
1
2
3
4
5
...

References

SHOWING 1-10 OF 22 REFERENCES
Bond pricing and the term structure of interest rates
This paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates. The methodology, based on the equivalent martingale measure technique, takesExpand
A Simple Approach to Interest-Rate Option Pricing
A simple introduction to contingent claim valuation of risky assets in a discrete time, stochastic interest-rate economy is provided. Taking the term structure of interest rates as exogenous,Expand
An arbitrage model of the term structure of interest rates
Abstract A formula for the price of default-free discount bonds of all maturities is found using a Black- Scholes type of arbitrage model which is based on the assumption that a portfolio of threeExpand
Term Structure Movements and Pricing Interest Rate Contingent Claims
This paper derives an arbitrage-free interest rate movements model (AR model). This model takes the complete term structure as given and derives the subsequent stochastic movement of the termExpand
On the term structure of interest rates
Abstract This paper tests the one good stochastic growth model with respect to its ability to explain the term structure of real interest rates. We undertake both a qualitative and quantitativeExpand
The Pricing of Options on Assets with Stochastic Volatilities
One option-pricing problem which has hitherto been unsolved is the pricing of European call on an asset which has a stochastic volatility. This paper examines this problem. The option price isExpand
A continuous time approach to the pricing of bonds
Abstract This paper develops an arbitrage model of the term structure of interest rates based on the assumptions that the whole term structure at any point in time may be expressed as a function ofExpand
A theory of the term structure of interest rates'', Econometrica 53, 385-407
AbstractThis paper uses an intertemporal general equilibrium asset pricing model to study the term structure of interest rates. In this model, anticipations, risk aversion, investment alternatives,Expand
An equilibrium characterization of the term structure
Abstract The paper derives a general form of the term structure of interest rates. The following assumptions are made: (A.1) The instantaneous (spot) interest rate follows a diffusion process; (A.2)Expand
A nonlinear general equilibrium model of the term structure of interest rates
Abstract We derive and test an alternative closed-form general equilibrium model of the term structure within the Cox, Ingersoll, and Ross theoretical framework in which yields are nonlinearExpand
...
1
2
3
...