Pricing forward-start options in the HJM framework; evidence from the Polish market
Tom 28 / 2001
Applicationes Mathematicae 28 (2001), 211-224 MSC: Primary 90A09; Secondary 60G44, 60H30. DOI: 10.4064/am28-2-7
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.