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A Term Structure Model and Interest Rate Options

  • Klaus Sandmann
  • Dieter Sondermann
Conference paper

Abstract

Closely related to option contracts over stocks are interest rate options like caps and floors which offer the possibility of protection against unfavorable interest rate movements. The properties of interest rate options are similar to those of European call and put options over debt contracts. In principle we are looking for a protection against upward movements of the interest rate, called a cap contract and for protection against downward movements, which is known as a floor contract. The underlying security of these contracts is the interest rate (e.g. 3 months USOR).

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Copyright information

© Springer-Verlag Berlin Heidelberg 1993

Authors and Affiliations

  • Klaus Sandmann
    • 1
  • Dieter Sondermann
    • 1
  1. 1.Statistische AbteilungUniversität BonnBonnGermany

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