Pricing Interest-Rate-Derivative Securities
- 1 October 1990
- journal article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 3 (4) , 573-592
- https://doi.org/10.1093/rfs/3.4.573
Abstract
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 those obtained using a number of other models.Keywords
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