Fixed-income average options: a pricing approach based on Gaussian mean-reverting cyclical models

Author:

León-Pérez BelénORCID,Moreno ManuelORCID

Abstract

AbstractThis paper values fixed-income (discrete- and continuous-time) European Asian and Australian options. We assume that the term structure of interest rates is modelled by the specification proposed in Moreno et al. (Econ Model 72:140–150, 2018, https://doi.org/10.1016/j.econmod.2018.01.015). We obtain closed-form expressions for the premiums of geometric average options and, for arithmetic average options, premiums are computed by numerical methods. We also perform a sensitivity analysis with respect to different parameters for both (geometric and arithmetic) options.

Funder

Ministerio de Ciencia e Innovación

Publisher

Springer Science and Business Media LLC

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