Ch19HullFundamentals6thEd

Ch19HullFundamentals6thEd - Fundamentals of Futures and...

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Unformatted text preview: Fundamentals of Futures and Options Markets , 6 th Edition, Copyright John C. Hull 2007 19.1 Interest Rate Options Chapter 19 Fundamentals of Futures and Options Markets , 6 th Edition, Copyright John C. Hull 2007 19.2 Exchange-Traded Interest Rate Options Treasury bond futures options (CBOT) Eurodollar futures options Fundamentals of Futures and Options Markets , 6 th Edition, Copyright John C. Hull 2007 19.3 Embedded Bond Options Callable bonds: Issuer has option to buy bond back at the call price. The call price may be a function of time Puttable bonds: Holder has option to sell bond back to issuer Fundamentals of Futures and Options Markets , 6 th Edition, Copyright John C. Hull 2007 19.4 Blacks Model & Its Extensions Blacks model is used to value many interest rate options It assumes that the value of an interest rate, a bond price, or some other variable at a particular time T in the future has a lognormal distribution The payoff is discounted from the time of the payoff to today at todays risk-free rate Fundamentals of Futures and Options Markets , 6 th Edition, Copyright John C. Hull 2007 19.5 European Bond Options When valuing European bond options it is usual to assume that the future bond price is lognormal Fundamentals of Futures and Options Markets , 6 th Edition, Copyright John C. Hull 2007 19.6 European Bond Options continued F : forward bond price K : strike price r : interest rate for maturity T T : life of the option B : volatility of F T d d T T K F d d N F d...
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This note was uploaded on 10/01/2008 for the course FIN FIN4110 taught by Professor Liuming during the Spring '08 term at CUHK.

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Ch19HullFundamentals6thEd - Fundamentals of Futures and...

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