This article is cited in 1 paper

Modeling of certain problems in financial mathematics: Spread option pricing

K. P. Khorev

Faculty of Mechanics and Mathematics, Moscow State University, Vorob'evy gory, Moscow, 119992, Russia

Abstract: The problem of valuating exotic options, namely, the option on the spread between two forward interest rates is considered. The price of the option is derived under the assumption that the dynamics of debt instruments and the interest rates are described by the Heath–Jarrow–Morton model. The parameters of the model are estimated, and the price of the option is numerically computed based on Russian bond market data.

Key words: spread option, forward interest rate, Health–Jarrow–Morton model, probabilistic methods.

UDC: 519.676

Received: 24.08.2006
Revised: 18.09.2006

 English version: Computational Mathematics and Mathematical Physics, 2007, 47:4, 601–611

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