An Empirical Comparison of Forward‐Rate and Spot‐Rate Models for Valuing Interest‐Rate Options
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- Author(s): Wolfgang Bühler, Marliese Uhrig‐Homburg, Ulrich Walter, Thomas Weber
- Published: May 06, 2003
- Pages: 269-305
- DOI: 10.1111/0022-1082.00104
Our main goal is to investigate the question of which interest‐rate options valuation models are better suited to support the management of interest‐rate risk. We use the German market to test seven spot‐rate and forward‐rate models with one and two factors for interest‐rate warrants for the period from 1990 to 1993. We identify a one‐factor forward‐rate model and two spot‐rate models with two factors that are not significantly outperformed by any of the other four models. Further rankings are possible if additional criteria are applied.