Valuing futures and options on volatility

Article Abstract:

Simple closed-form valuation models for futures and options contracts on stock index volatility were developed. The models show that volatility derivatives have properties that are different from conventional futures and options on traded assets. In addition, they suggest that long-term volatility futures and options may not be effective in hedging and managing volatility risk since mean reversions reduce the effect of volatility shocks on the price of options and futures.

Usage, Stochastic analysis, Derivatives (Financial instruments)

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The valuation of options on coupon bonds

Article Abstract:

An evaluation of options on coupon bonds is presented. The analysis focuses on simple closed-form expressions for European options by applying a general equilibrium term-structure framework of Cox, Ingersoll and Ross. The applied framework exhibits vital differences from the assumptions of the Black-Sholes model. It is shown that bond call and put values can follow directions assumed by the value of underlying bond variations.

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The duration vector: a continuous-time extension to default-free interest rate contingent claims

Article Abstract:

The interest rate risk characteristics of default-free interest rate contingent claims are analyzed by studying the risk exposure of bond options under multiple interest rate uncertainty. A continuous-time stochastic equilibrium framework is assumed for the interest rate risk analysis of bond options.

Interest rates

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