This paper studies the valuation of floaters and options on floaters under the assumption of a square root interest rate model. By incorporating the extension proposed by Duffie (1995) into the Cox, Ingersoll and Ross model (1985) in order to accommodate the presence of special repo rates, we obtain closed-form formulas for pricing debt claims with floating-rate coupons and options written on the price of these bonds. Using data from the Italian secondary market, the model has been estimated on a cross-section of fixed and floating-rate Treasuries, futures on Treasury bonds and futures options. Our results show that the model fits the market prices well.

Valuation of Floaters and Options on Floaters under Special Repo Rates / Barone, Emilio; Risa, S.. - (2004). [10.2139/ssrn.466741]

Valuation of Floaters and Options on Floaters under Special Repo Rates

BARONE, EMILIO;
2004

Abstract

This paper studies the valuation of floaters and options on floaters under the assumption of a square root interest rate model. By incorporating the extension proposed by Duffie (1995) into the Cox, Ingersoll and Ross model (1985) in order to accommodate the presence of special repo rates, we obtain closed-form formulas for pricing debt claims with floating-rate coupons and options written on the price of these bonds. Using data from the Italian secondary market, the model has been estimated on a cross-section of fixed and floating-rate Treasuries, futures on Treasury bonds and futures options. Our results show that the model fits the market prices well.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/168304
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