AbstractsBusiness Management & Administration

A Zero-Coupon Bond based Spread Option : An Application of the Heath-Jarrow-Morton Model

by Kjersti Rekdal Skåre




Institution: University of Oslo
Department:
Year: 1000
Keywords: VDP::412
Record ID: 1276707
Full text PDF: https://www.duo.uio.no/handle/10852/37720


https://www.duo.uio.no/bitstream/10852/37720/2/Skaare-Master.pdf


Abstract

In this thesis we derive the price of a spread option based on two zero-coupon bonds. The two bonds will represent di erent nancial markets, and the HJM framework is used as the model for the underlying forward rates. We evaluate the resulting pricing formula with respect to the correlation between, and the volatility of, these forward rates and reflect on its ability to properly model such derivatives.