Valuation and hedging of contingent claims in the HJM model with deterministic volatilities
1996; Taylor & Francis; Volume: 3; Issue: 3 Linguagem: Inglês
10.1080/13504869600000012
ISSN1466-4313
Autores Tópico(s)Credit Risk and Financial Regulations
ResumoAbstract The aim of the present paper is mostly expository, namely, we intend to provide a concise presentation of arbitrage pricing and hedging of European contingent claims within the Heath, Jarrow and Morton frame-work introduced in Heath et al. (1992) under deterministic volatilities. Such a special case of the HJM model, frequently referred to as the Gaussian HJM model, was studied among others in Amin and Jarrow (1992), Jamshidian (1993), Brace and Musiela (1994a, 1994b). Here, we focus mainly on the partial differential equations approach to the valuation and hedging of derivative securities in the HJM framework. For the sake of completeness, the risk neutral methodology (more specifically, the forward measure technique) is also exposed. Keywords: term structure of interest ratesbond optioninterest rate derivatives
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