The Pricing of Eurodollar Futures Options Under the Market Model.

• Main Authors: Tzu-Yun Fang, 方姿云
• Other Authors: Yueh-Neng Lin
• Format: Others
• Language: zh-TW
• Published: 2003
• Online Access: http://ndltd.ncl.edu.tw/handle/85661078143514828252

碩士 === 國立東華大學 === 企業管理學系 === 91 === Abstract The popularity of the interest rate derivatives promotes the interest rate model. Although HJM(1992) came up with the new methodology, the instantaneously forward rates of the Normal distribution seemed abnormal and didn’t exist in the real market. The Market model tackled the problem. In contrast to HJM model, the Market model has two appealing features as follows: (1) the forward rates can be observed directly. (2) The forward rates follow the Lognormal distribution. Based on some adjustment of Uratani and Utsunomiya(1999) and Park(2002), this research used the Binomial tree of the Market model to price Eurodollar futures option. The empirical results found the exponential volatility function has larger fitting errors than the constant volatility function. This didn’t match with other empirical results. However, we can make sure that the parameters of the exponential volatility function are more unstable than those of the constant volatility function. In addition, the pricing errors of the deep-in-the-money option are the most severe. One of reasons resulted in discordances with other empirical results is this research didn’t get rid of deep-in-the-money and deep-out-of-the-money options. The trading activities of these options are very inactive. Besides, the parameter values of the exponential volatility function may be possible local solutions, not global solutions.