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arXiv · 2106.04518

Options on Bonds: Implied Volatilities from Affine Short-Rate Dynamics

Matthew Lorig·Natchanon Suaysom
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Abstract

We derive an explicit asymptotic approximation for the implied volatilities of Call options written on bonds assuming the short-rate is described by an affine short-rate model. For specific affine short-rate models, we perform numerical experiments in order to gauge the accuracy of our approximation.

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Matthew Lorig, Natchanon Suaysom. 2021-06-08. Options on Bonds: Implied Volatilities from Affine Short-Rate Dynamics. https://arxiv.org/abs/2106.04518

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