An Exact Bond Option Formula
- Abstract
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- Author(s): FARSHID JAMSHIDIAN
- Published: Apr 30, 2012
- Pages: 205-209
- DOI: 10.1111/j.1540-6261.1989.tb02413.x
ABSTRACT
This paper derives a closed‐form solution for European options on pure discount bonds, assuming a mean‐reverting Gaussian interest rate model as in Vasicek [8]. The formula is extended to European options on discount bond portfolios.