Modelling the Uruguayan Debt Through Gaussians Models

Mordecki, Ernesto; Sosa, Andrés

doi:10.1007/978-3-319-32543-9_17

Cited by 1 publication

(2 citation statements)

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“…the Vasicek density, fact that can be checked computing futures prices, but the volatility of both models is approximately the same. We believe that the consideration of parametric models with more than one factor (see the model discussion in [18]) would provide prices closer to the BDT model, due to the improvement of the initial curve fitting. 4.…”

Section: Option Pricesmentioning

confidence: 99%

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Pricing bond options in emerging markets: A case study

Magnou¹,

Mordecki²,

Sosa³

2018

Journal of Dynamics &Amp; Games

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We propose two methodologies to price sovereign bond options in emerging markets. The motivation is to provide hedging protection against price fluctuations, departing from the not liquid data provided by the stock exchange. Taking this into account, we first compute prices provided by the Jamshidian formula, when modeling the interest rate through Vasicek model, with parameters estimated with the help of the Kalman filter. The second methodology is the pricing strategy provided by the Black-Derman-Toy tree model. A numerical comparison is carried out. The first equilibrium approach provides parsimonious modeling, is less sensitive to daily changes and more robust, while the second non-arbitrage approach provides more fluctuating but also what can be considered more accurate option prices.

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Section: Option Pricesmentioning

confidence: 99%

“…We choose a one factor model, due to simplicity and to the existence of a closed formula for option prices. Models with more factors, as in [18], can also be considered. This procedure is robust because it models the complete interest rate structure with the help of only three parameters.…”

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confidence: 99%