Coupon Bond Option Pricing on the Basis of Multiple Factors Affine Term Structure Model of Interest Rates

Author

Liu Wenyu ; Xiong Minghuan ; Wang Xiaoguang ; Zhou Rongxi

Author_Institution

Sch. of Econ. & Manage., Beijing Univ. of Chem. Technol., Beijing, China

fYear

2011

fDate

17-18 Oct. 2011

Firstpage

414

Lastpage

417

Abstract

In this paper, a three-factor affine term structure model which has the square-root diffuse properties is adopted. By using the Kalman filter method, the parameters of the model are estimated, then the prices of coupon bond options are analyzed by Monte Carlo stimulation and the elements which affect the option pricing are also discussed in this paper. The results show that the price of bond option has a positive correlation with the maturity of the option and the price of bond, it has a negative correlation with the strike price of option. The results also show that value-added option price of the adjacent maturity of the option is a constant approximately and it has a negative correlation with the maturity of the bond.

Keywords

Kalman filters; Monte Carlo methods; economic indicators; share prices; Kalman filter method; Monte Carlo stimulation; coupon bond option pricing; interest rates; multiple factors affine term structure model; option maturity; square root diffuse properties; value added option price; Economic indicators; Educational institutions; Estimation; Kalman filters; Modeling; Monte Carlo methods; Pricing; Affine term structure models; Coupon option pricing; Kalman filter; Monte Carlo simulation;

fLanguage

English

Publisher

ieee

Conference_Titel

Business Intelligence and Financial Engineering (BIFE), 2011 Fourth International Conference on

Conference_Location

Wuhan

Print_ISBN

978-1-4577-1541-9

Type

conf

DOI

10.1109/BIFE.2011.46

Filename

6121169