Discrete-Time Valuation of American Options with Stochastic Interest Rates
We develop an arbitrage-free discrete time model to price American-style claims for which domestic term structure risk, foreign term structure risk, and currency risk are important. This model combines a discrete version of the Heath, Jarrow, and Morton (1992) term structure model with the binomial...
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| Veröffentlicht in: | The Review of financial studies 1995-04, Vol.8 (1), p.193-234 |
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| container_title | The Review of financial studies |
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| creator | Amin, Kaushik I. Bodurtha, James N. |
| description | We develop an arbitrage-free discrete time model to price American-style claims for which domestic term structure risk, foreign term structure risk, and currency risk are important. This model combines a discrete version of the Heath, Jarrow, and Morton (1992) term structure model with the binomial model of Cox, Ross, and Rubinstein (1979). It converges (weakly) to the continuous time models in Amin and Jarrow (1991, 1992). The general model is "path dependent" and can be implemented with arbitrary volatility functions to value claims with maturity up to five years. The model is illustrated with applications to long-dated American currency warrants and a cross-rate swap from the quanto class. |
| doi_str_mv | 10.1093/rfs/8.1.193 |
| format | Article |
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The model is illustrated with applications to long-dated American currency warrants and a cross-rate swap from the quanto class.</description><subject>American dollar</subject><subject>American option</subject><subject>Arbitrage</subject><subject>Commodities</subject><subject>Currencies</subject><subject>Currency</subject><subject>Equity</subject><subject>Financial instruments</subject><subject>Fixed exchange rates</subject><subject>Foreign exchange rates</subject><subject>Interest rate risk</subject><subject>Interest rates</subject><subject>Partial differential equations</subject><subject>Path dependence</subject><subject>Pricing</subject><subject>Securities prices</subject><subject>Standard deviation</subject><subject>Stochastic models</subject><subject>Strike prices</subject><subject>U.S.A</subject><subject>Valuation</subject><subject>Volatility</subject><subject>Warrants</subject><issn>0893-9454</issn><issn>1465-7368</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>1995</creationdate><recordtype>article</recordtype><sourceid>K30</sourceid><recordid>eNp10E1LAzEQBuAgCtbqyauHoOBFts3X7ibHUr8qhYJWryEbZ-mW7aYmWcR_b0rFg-BpIPOQmXkROqdkRIniY1-HsRzREVX8AA2oKPKs5IU8RAMiFc-UyMUxOglhTQihXJABerptgvUQIVs2G8Bvpu1NbFyHXY0nG_CNNR1ebHdPAX82cYVforMrE2Jj8ayL4CFE_GwihFN0VJs2wNlPHaLX-7vl9DGbLx5m08k8s5zLmKmiKgnIdylzAayqLaN5tVumpAwqUtWkqiwxTElb1sA4Z6knKzCp1GAsH6Lr_b9b7z76NF5v0g3QtqYD1wfNZSHKUpQJXv6Ba9f7Lu2mGSkLSWReJHT1H6JMMSqJYiSpm72y3oXgodZb32yM_9KU6F30OkWvpaY6RZ_0xV6vQ3T-lzJVMKoE_waVR39A</recordid><startdate>19950401</startdate><enddate>19950401</enddate><creator>Amin, Kaushik I.</creator><creator>Bodurtha, James N.</creator><general>Oxford University Press</general><general>Published by Oxford University Press for the Society for Financial Studies</general><general>Oxford Publishing Limited (England)</general><scope>AAYXX</scope><scope>CITATION</scope><scope>JQCIK</scope><scope>K30</scope><scope>PAAUG</scope><scope>PAWHS</scope><scope>PAWZZ</scope><scope>PAXOH</scope><scope>PBHAV</scope><scope>PBQSW</scope><scope>PBYQZ</scope><scope>PCIWU</scope><scope>PCMID</scope><scope>PCZJX</scope><scope>PDGRG</scope><scope>PDWWI</scope><scope>PETMR</scope><scope>PFVGT</scope><scope>PGXDX</scope><scope>PIHIL</scope><scope>PISVA</scope><scope>PJCTQ</scope><scope>PJTMS</scope><scope>PLCHJ</scope><scope>PMHAD</scope><scope>PNQDJ</scope><scope>POUND</scope><scope>PPLAD</scope><scope>PQAPC</scope><scope>PQCAN</scope><scope>PQCMW</scope><scope>PQEME</scope><scope>PQHKH</scope><scope>PQMID</scope><scope>PQNCT</scope><scope>PQNET</scope><scope>PQSCT</scope><scope>PQSET</scope><scope>PSVJG</scope><scope>PVMQY</scope><scope>PZGFC</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>19950401</creationdate><title>Discrete-Time Valuation of American Options with Stochastic Interest Rates</title><author>Amin, Kaushik I. ; Bodurtha, James N.</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c338t-96b70e8d8854e2bfc215b1340712eb0bf0bbc0a298c7fe23323408bea340feac3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>1995</creationdate><topic>American dollar</topic><topic>American option</topic><topic>Arbitrage</topic><topic>Commodities</topic><topic>Currencies</topic><topic>Currency</topic><topic>Equity</topic><topic>Financial instruments</topic><topic>Fixed exchange rates</topic><topic>Foreign exchange rates</topic><topic>Interest rate risk</topic><topic>Interest rates</topic><topic>Partial differential equations</topic><topic>Path dependence</topic><topic>Pricing</topic><topic>Securities prices</topic><topic>Standard deviation</topic><topic>Stochastic models</topic><topic>Strike prices</topic><topic>U.S.A</topic><topic>Valuation</topic><topic>Volatility</topic><topic>Warrants</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Amin, Kaushik I.</creatorcontrib><creatorcontrib>Bodurtha, James N.</creatorcontrib><collection>CrossRef</collection><collection>Periodicals Index Online Segment 33</collection><collection>Periodicals Index Online</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - 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| ispartof | The Review of financial studies, 1995-04, Vol.8 (1), p.193-234 |
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| source | Business Source Complete; Oxford University Press Journals Digital Archive Legacy; Periodicals Index Online; Jstor Complete Legacy |
| subjects | American dollar American option Arbitrage Commodities Currencies Currency Equity Financial instruments Fixed exchange rates Foreign exchange rates Interest rate risk Interest rates Partial differential equations Path dependence Pricing Securities prices Standard deviation Stochastic models Strike prices U.S.A Valuation Volatility Warrants |
| title | Discrete-Time Valuation of American Options with Stochastic Interest Rates |
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