Closed-form Arrow-Debreu pricing for the Hull-White short rate model

Turfus, Colin

doi:10.1080/14697688.2019.1636125

Cited by 13 publications

(4 citation statements)

References 12 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…We offer a sketch of the proof that (3.20) represents the pricing kernel for (2.6). We follow Turfus [2019Turfus [ , 2021a in introducing the following definitions and notation.…”

Section: A Proof Of Pricing Kernel Resultsmentioning

confidence: 99%

See 1 more Smart Citation

Analytic RFR Option Pricing with Smile and Skew

Turfus

Romero-Bermúdez

2022

SSRN Journal

View full text Add to dashboard Cite

“…We offer a sketch of the proof that (3.20) represents the pricing kernel for (2.6). We follow Turfus [2019Turfus [ , 2021a in introducing the following definitions and notation.…”

Section: A Proof Of Pricing Kernel Resultsmentioning

confidence: 99%

“…This makes the situation similar to that captured by the model of Hull and White [1990]. An exact analytic pricing kernel for this model was derived by Van Steenkiste and Foresi [1999], Turfus [2019] and the extension of this kernel to address compounding rates by Turfus [2021aTurfus [ , 2022.…”

Section: Introductionmentioning

confidence: 96%

Analytic RFR Option Pricing with Smile and Skew

Turfus

Romero-Bermúdez

2022

SSRN Journal

View full text Add to dashboard Cite

“…We have extended here the model of Hull and White (1990) and the associated analytic kernel presented by Turfus (2019Turfus ( , 2021a to incorporate stochastic credit default risk, taking the credit intensity to be governed by a Black-Karasinski short-rate model . We have presented an analytic formulation of a joint rates-credit kernel which was used to obtain asymptotically valid analytic pricing formulae for risky LIBOR payments, including with caps and/or floors, explicitly incorporating the potential wrong-way credit risk.…”

Section: Discussionmentioning

confidence: 99%

Analytic Correlation Risk for CDS

Turfus¹

2021

Wilmott

View full text Add to dashboard Cite

We consider a rates credit hybrid model with the rates and the credit intensity governed by Hull-White and Black-Karasinski short-rate models, respectively. We report on and make use of a highly accurate analytic representation of a pricing kernel for European-style options and/or protection payments in powers of the credit spread (not of its lognormal volatility). We show how this can be applied to calculate analytically the impact of rates credit correlation on the pricing of credit default swaps (CDS), extinguishing interest rate swaps, and survival-contingent capped LIBOR flows. Very simple expressions are obtained in all cases for present values (PVs). Highly favorable comparison is found between even the first-order approximations and Monte Carlo simulations.

show abstract

“…It provides the closed-form pricing formulas for bonds and standard IRDs such as caps/floors and swaptions. More generally, Turfus [9] derived a systematic method for exact analytic pricing formulas for European-style interest rate options under the HW model. Nevertheless, we cannot derive analytic pricing formulas under the HW model for many non-standard IRDs, especially with Bermudan option property, and thus, one should take a numerical approach.…”

Section: Models and Partial Differential Equationsmentioning

confidence: 99%

Finite Difference Method for the Hull–White Partial Differential Equations

Lee

Yang

2020

Mathematics

View full text Add to dashboard Cite

This paper reviews the finite difference method (FDM) for pricing interest rate derivatives (IRDs) under the Hull–White Extended Vasicek model (HW model) and provides the MATLAB codes for it. Among the financial derivatives on various underlying assets, IRDs have the largest trading volume and the HW model is widely used for pricing them. We introduce general backgrounds of the HW model, its associated partial differential equations (PDEs), and FDM formulation for one- and two-asset problems. The two-asset problem is solved by the basic operator splitting method. For numerical tests, one- and two-asset bond options are considered. The computational results show close values to analytic solutions. We conclude with a brief comment on the research topics for the PDE approach to IRD pricing.

show abstract

Closed-form Arrow-Debreu pricing for the Hull-White short rate model

Cited by 13 publications

References 12 publications

Analytic RFR Option Pricing with Smile and Skew

Analytic RFR Option Pricing with Smile and Skew

Analytic Correlation Risk for CDS

Finite Difference Method for the Hull–White Partial Differential Equations

Contact Info

Product

Resources

About