A discrete-time two-factor model for pricing bonds and interest rate derivatives under random volatility

Research, Preprint English OPEN
Steven L. Heston; Saikat Nandi;
  • Publisher: Atlanta, GA: Federal Reserve Bank of Atlanta
  • Subject: Derivative securities | Bonds ; Options (Finance) ; Interest rates ; Derivative securities | Interest rates | Options (Finance) | Bonds
    • ddc: ddc:330

This paper develops a discrete-time two-factor model of interest rates with analytical solutions for bonds and many interest rate derivatives when the volatility of the short rate follows a GARCH process that can be correlated with the level of the short rate itself. Be... View more
Share - Bookmark