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Pricing Stock and Bond Options when the Default-Free Rate Is Stochastic: A Comment

Published online by Cambridge University Press:  06 April 2009

Ren-Raw Chen
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Abstract

This paper corrects the bond option formula presented by R. Rabinovitch ((1989), Equation (10)). With just one state variable driving the economy, the formula should be the same as the ones presented by Jamshidian (1989) and Chaplin (1987).

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 26 , Issue 3 , September 1991 , pp. 433 - 434
Copyright
Copyright © School of Business Administration, University of Washington 1991

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References

Chaplin, G. “A Formula for Bond Option Values under An Ornstein-Uhlenbeck Model for The Spot.” Actuarial Science Working Paper No. 87–15, Univ. of Waterloo (1987).Google Scholar
Jamshidian, F. “An Exact Bond Option Formula.” Journal of Finance, 44 (03 1989), 205–209.CrossRefGoogle Scholar
Rabinovitch, R. “Pricing Stock and Bond Options when the Default-Free Rate is Stochastic.” Journal of Financial and Quantitative Analysis, 24 (12 1989), 447–458.CrossRefGoogle Scholar
Vasicek, O. “An Equilibrium Characterization of The Term Structure.” Journal of Financial Economics, 5 (11 1977), 177–188.CrossRefGoogle Scholar