TY - JOUR
T1 - Term structure movements implicit in Asian option prices
AU - Almeida, Caio
AU - Vicente, José
N1 - Funding Information:
The views expressed are those of the authors and do not necessarily reflect the views of the Central Bank of Brazil. The first author gratefully acknowledges financial support given by CNPq-Brazil. Any remaining errors are our responsibility alone.
PY - 2012/1
Y1 - 2012/1
N2 - In this paper we implement dynamic term structure models that adopt bonds and Asian options in the estimation process. The goal is to analyse the pricing and hedging implications of term structure movements when options are (or are not) included in the estimation process. We investigate how options affect the shape, risk premium and hedging structure of the dynamic factors. We find that the inclusion of options affects the loadings of the slope and curvature factors, and considerably changes the risk premium and hedging structure of all dynamic factors.
AB - In this paper we implement dynamic term structure models that adopt bonds and Asian options in the estimation process. The goal is to analyse the pricing and hedging implications of term structure movements when options are (or are not) included in the estimation process. We investigate how options affect the shape, risk premium and hedging structure of the dynamic factors. We find that the inclusion of options affects the loadings of the slope and curvature factors, and considerably changes the risk premium and hedging structure of all dynamic factors.
KW - Affine term structure models
KW - Asset pricing
KW - Empirical finance
KW - Financial econometrics
KW - Fixed income derivatives
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U2 - 10.1080/14697681003720253
DO - 10.1080/14697681003720253
M3 - Article
AN - SCOPUS:84857170007
SN - 1469-7688
VL - 12
SP - 119
EP - 134
JO - Quantitative Finance
JF - Quantitative Finance
IS - 1
ER -