Abstract
We describe the Bond Market Model, a multi-factor interest rate term structure model, where it is possible to price with Black-like formulas the three classes of over-the-counter plain vanilla options. We derive the prices of caps/floors, bond options and swaptions. A comparison with Libor Market Model and Swap Market Model is discussed in detail, underlining advantages and limits of the different approaches.
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More From: International Journal of Theoretical and Applied Finance
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