Abstract
This paper studies the valuation of floaters and options on floaters under the assumption of a square root interest rate model. By incorporating the extension proposed by Duffie (1995) into the Cox, Ingersoll and Ross model (1985) in order to accommodate the presence of special repo rates, we obtain closed-form formulas for pricing debt claims with floating-rate coupons and options written on the price of these bonds. Using data from the Italian secondary market, the model has been estimated on a cross-section of fixed and floating-rate Treasuries, futures on Treasury bonds and futures options. Our results show that the model fits the market prices well.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
