Abstract:International audienceJamshidian developed a model for pricing bond options within a Vasicek one-factor framework, with the very useful property that it allows an option on a coupon bond to be decomposed into a set of options on the individual coupons. In the Vasicek framework, the “Jamshidian trick” produces yields to maturity on the coupons that are linear functions of the underlying state variable. But it has not been clear whether this approach could extend to more complicated interest rate processes. In t… Show more
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