This paper presents a general method for valuing fixed rate bonds and options written on them. In the first part, of a theoretical nature, we present valuation formulae, derived within the framework of the Cox, Ingersoll and Ross (CIR) model, both for bonds and for European options written on bonds (with and without coupons) and yields. We recall the theoretical parity of put and call options. In the second part we describe a procedure that can be used to estimate the CIR model using the prices of riskless coupon bonds. Lastly, we describe the valuation of bonds denominated in three different cur-rencies and of the options implied in some Italian government securities.
The Valuation of Bonds and Bond Options: Some Empirical Tests / Barone, Emilio; Cuoco, D.. - (2004). [10.2139/ssrn.512523]
The Valuation of Bonds and Bond Options: Some Empirical Tests
BARONE, EMILIO;
2004
Abstract
This paper presents a general method for valuing fixed rate bonds and options written on them. In the first part, of a theoretical nature, we present valuation formulae, derived within the framework of the Cox, Ingersoll and Ross (CIR) model, both for bonds and for European options written on bonds (with and without coupons) and yields. We recall the theoretical parity of put and call options. In the second part we describe a procedure that can be used to estimate the CIR model using the prices of riskless coupon bonds. Lastly, we describe the valuation of bonds denominated in three different cur-rencies and of the options implied in some Italian government securities.Pubblicazioni consigliate
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