Fixed-income average options: a pricing approach based on Gaussian mean-reverting cyclical models

This paper values fixed-income (discrete- and continuous-time) European Asian and Australian options. We assume that the term structure of interest rates is modelled by the specification proposed in Moreno et al. (Econ Model 72:140–150, 2018, https://doi.org/10.1016/j.econmod.2018.01.015 ). We obtai...

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Bibliographic Details
Published in:Annals of operations research 2024-06, Vol.337 (1), p.167-196
Main Authors: León-Pérez, Belén, Moreno, Manuel
Format: Article
Language:English
Subjects:
Arithmetic
Business and Management
Business cycles
Combinatorics
Interest rates
Mathematical analysis
Normal distribution
Numerical analysis
Numerical methods
Operations research
Operations Research/Decision Theory
Original Research
Parameter sensitivity
Put & call options
Risk premiums
Securities prices
Sensitivity analysis
Theory of Computation
Zero coupon bonds
Citations: Items that this one cites
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Summary:This paper values fixed-income (discrete- and continuous-time) European Asian and Australian options. We assume that the term structure of interest rates is modelled by the specification proposed in Moreno et al. (Econ Model 72:140–150, 2018, https://doi.org/10.1016/j.econmod.2018.01.015 ). We obtain closed-form expressions for the premiums of geometric average options and, for arithmetic average options, premiums are computed by numerical methods. We also perform a sensitivity analysis with respect to different parameters for both (geometric and arithmetic) options.
ISSN:0254-5330
1572-9338
DOI:10.1007/s10479-024-05904-x