Abstract
So far in this book, I have discussed only options that are traded at organised markets. In the 1980s a whole new option market developed to address the unprecedented interest rate, commodity and currency risks that were associated with a variety of economic shocks. These products were not offered at an organised marketplace but were instead offered directly by financial institutions to clients. These products became known as Over the Counter (OTC) options. The principal differences between exchange traded options and OTCs are that exchange-traded options are more actively traded but not very flexible (a restricted range of maturities and strike prices) while OTCs offer tailor-made terms but often with a lower liquidity or at a higher cost. In this chapter, I will examine only interest rate OTCs. In the next chapter, the coverage of OTCs will cover all the major financial markets with the discussion of exotic options.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Notes
Ho, Thomas, S. Y. and S.B. Lee, “Term Structure Movements and Pricing Interest Rate Contingent Claims,” Journal of Finance, Vol. 41 (December 1986), pp: 1011–29.
Hull, John, and Alan White. “Pricing Interest-Rate-Derivative Securities.” The Review of Financial Studies, Vol. 3, No. 4 (1990), pp. 573–592.
Heath, David, Robert Jarrow and Andrew Morton, 1990, “Bond Pricing and the Term Structure of Interest Rates: a New Methodology for Contingents Claims Valuation”, Journal of Financial and Quantitative Analysis 25 (December 1990), pp. 419–440.
Figlewski Stephen, William I. Silber and Marti G. Subrahmanyam, “Financial Options: From Theory to Practice” Business One Irwin, Homewood, Illinois, 1990. pp. 337–338.
This section is heavily drawn upon a paper written by this author and published as, “The A to Z of Caps”, in Risk Magazine, Vol. 2, No. 3 (March 1989), pp. 21–24.
This section is drawn heavily from a paper written by this Author and appeared as “Behind the Mirror”, in Risk Magazine, Vol. 2, No. 2 (February 1989), pp. 17–23.
See Smith, Clifford W. Jr., Charles W. Smithson, and Lee M. Wakeman, “The Evolving Market for Swaps”, Midland Corporate Finance Journal, Winter 1986, pp. 20–32.
Margrabe, William, “The Value of an Option to Exchange One Asset for Another”, Journal of Finance, 33 (March 1977), pp. 177–186.
Copyright information
© 1994 Palgrave Macmillan, a division of Macmillan Publishers Limited
About this chapter
Cite this chapter
Tompkins, R. (1994). OTC Interest Rate Options. In: Options Explained2. Finance and Capital Markets. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-13636-0_12
Download citation
DOI: https://doi.org/10.1007/978-1-349-13636-0_12
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-13638-4
Online ISBN: 978-1-349-13636-0
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)