A+ CATEGORY SCIENTIFIC UNIT

Pricing forward-start options in the HJM framework; evidence from the Polish market

Volume 28 / 2001

P. Sztuba, A. Weron Applicationes Mathematicae 28 (2001), 211-224 MSC: Primary 90A09; Secondary 60G44, 60H30. DOI: 10.4064/am28-2-7

Abstract

We show how to use the Gaussian HJM model to price modified forward-start options. Using data from the Polish market we calibrate the model and price this exotic option on the term structure. The specific problems of Central Eastern European emerging markets do not permit the use of the popular lognormal models of forward LIBOR or swap rates. We show how to overcome this difficulty.

Authors

  • P. SztubaHugo Steinhaus Center for Stochastic Methods
    and
    Institute of Mathematics
    Wroc/law University of Technology
    50-370 Wroc/law, Poland
    e-mail
  • A. WeronHugo Steinhaus Center
    for Stochastic Methods
    and Institute of Mathematics
    Wroclaw University of Technology
    50-370 Wroclaw, Poland
    e-mail

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