Pricing of Bond Options

Unspanned Stochastic Volatility and Random Field Models

  • Detlef Repplinger

Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 615)

Table of contents

About this book


RWT Award 2008!

For his excellent monograph, Detlef Repplinger won the RWT Reutlinger Wirtschaftstreuhand GMBH award in June 2008.

A major theme of this book is the development of a consistent unified model framework for the evaluation of bond options. In general options on zero bonds (e.g. caps) and options on coupon bearing bonds (e.g. swaptions) are linked by no-arbitrage relations through the correlation structure of interest rates. Therefore, unspanned stochastic volatility (USV) as well as Random Field (RF) models are used to model the dynamics of entire yield curves. The USV models postulate a correlation between the bond price dynamics and the subordinated stochastic volatility process, whereas Random Field models allow for a deterministic correlation structure between bond prices of different terms. Then the pricing of bond options is done either by running a Fractional Fourier Transform or by applying the Integrated Edgeworth Expansion approach. The latter is a new extension of a generalized series expansion of the (log) characteristic function, especially adapted for the computation of exercise probabilities.


Arbitrage Fixed Income Derivatives Fourier Transform MATLAB Options Random Fields Swaptions and Caps Valuation Puzzle Unspanned Stochastic Volatility

Authors and affiliations

  • Detlef Repplinger
    • 1
  1. 1.Man Investments AGPfäffikon SZSwitzerland

Bibliographic information

  • DOI
  • Copyright Information Springer-Verlag Berlin Heidelberg 2008
  • Publisher Name Springer, Berlin, Heidelberg
  • eBook Packages Business and Economics
  • Print ISBN 978-3-540-70721-9
  • Online ISBN 978-3-540-70729-5
  • Series Print ISSN 0075-8442
  • Buy this book on publisher's site
Industry Sectors
Chemical Manufacturing
Finance, Business & Banking
Consumer Packaged Goods