Yield-curve models suggested previously in the literature seem always to make a tradeoff between analytical tractability and a realistic behavior of the interest rates. In this paper we analyze a model that combines both features into one model: the interest rates are always positive and the model has a rich analytical structure. Not only is our model theoretically appealing, we also provide empirical evidence that our model can fit observed cap and floor prices better than the Hull-White model.
|Journal||Review of Derivatives Research|
|Publication status||Published - Oct 1996|
- yield-curve models
- interest rate options
- contingent claims
- fundamental solutions