Journal of Guangxi Normal University(Natural Science Edition) ›› 2016, Vol. 34 ›› Issue (3): 74-85.doi: 10.16088/j.issn.1001-6600.2016.03.011

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Pricing of Interest Rate Derivatives Based on Affine Jump Diffusion Model

WANG Jiaqin, DENG Guohe   

  1. School of Mathematics and Statistics,Guangxi Normal University, Guilin Guangxi 541004, China
  • Received:2016-03-01 Online:2016-09-30 Published:2018-09-17

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Abstract: The pricing of interest rate derivatives is considered under an affine jump diffusion model. Using the Fourier transform method and the forward measure change technique,the closed explicit formulas for both the price of the default-free,zero-coupon bond and the value of the European options on the default-free,zero-coupon bond are obtained. Furthermore,pricing problems on both the European option on the coupon bond and the interest rate options are extended in this model by applying these explicit formulas above. Finally,the impacts of the key parameters in this model on prices for both the bond and bond option,and implied volatilities of bond options are analyzed by numerical examples,respectively. Numerical results show that the jump risks have more remarkable effects on the interest rate derivative prices and implied volatility,which show that the affine jump diffusion term structure model of the interest rate fits reality well.

Key words: affine jump diffusion model, term structure of interest rate, bond options, Fourier transform, implied volatility.

CLC Number: 

  • O211.9
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