Article1995

Discrete-Time Valuation of American Options with Stochastic Interest Rates

81 citations0/0 files storedReview of Financial Studies

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Stochastic processes and financial applications Financial Markets and Investment Strategies Risk Management in Financial Firms

Abstract

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.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 81 citations exist upstream.

References

1973Theory of Rational Option Pricing 2005Theory of rational option pricing 1977An equilibrium characterization of the term structure 1979Option pricing: A simplified approach 1992Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation 1976The valuation of options for alternative stochastic processes 1981Martingales and stochastic integrals in the theory of continuous trading 1992An Empirical Comparison of Alternative Models of the Short-Term Interest Rate

Cited by

1995Lattice Models for Pricing American Interest Rate Claims 2001On the use of boundary conditions for variational formulations arising in financial mathematics 1995Multivariate Binomial Approximations for Asset Prices with Nonstationary Variance and Covariance Characteristics 1997The Valuation of American Options with Stochastic Interest Rates: A Generalization of the Geske-Johnson Technique 1997Interest Rate Risk Management

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.