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Author(s): Larguinho, M.
Dias, J. C.
Braumann, C. A.
Date: 2022
Title: Pricing and hedging bond options and sinking-fund bonds under the CIR model
Volume: 6
Number: 1
Pages: 1 - 34
ISSN: 2573-0134
DOI (Digital Object Identifier): 10.3934/QFE.2022001
Keywords: CIR model
Bond options
American options
Static hedging
Sinking-fund bonds
Abstract: This article derives simple closed-form solutions for computing Greeks of zero-coupon and coupon-bearing bond options under the CIR interest rate model, which are shown to be accurate, easy to implement, and computationally highly efficient. These novel analytical solutions allow us to extend the literature in two other directions. First, the static hedging portfolio approach is used for pricing and hedging American-style plain-vanilla zero-coupon bond options under the CIR model. Second, we derive analytically the comparative static properties of sinking-fund bonds under the same interest rate modeling setup.
Peerreviewed: yes
Access type: Open Access
Appears in Collections:BRU-RI - Artigos em revistas científicas internacionais com arbitragem científica

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