IJPAM: Volume 76, No. 4 (2012)
CONTRACTS IN THE HJM MODEL WITH
STOCHASTIC INTEREST RATES
Department of Applied Mathematics
Tamsui, New Taipei City, 25103, TAIWAN
Abstract. Recently, a spot martingale measure pricing method to derive pricing formulas of quanto forward contracts within the Heath, Jarrow and Morton (1992) interest rate model was published. Although the spot martingale measure pricing method is interesting, it requires that one knows something about the dependence between the discount factor and the payoff of the derivative security. Thus, more procedures are required for computations. This paper proposes another simple approach. In particular, we demonstrate the forward measure pricing methodology to the valuation of quanto forward contracts within the HJM interest rate model and provide great ease in deriving closed form solutions.
Received: January 13, 2012
AMS Subject Classification: 91B28, 60G48 , 60J75
Key Words and Phrases: quanto forward contracts, Heath-Jarrow-Morton model, forward measure pricing method
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Source: International Journal of Pure and Applied Mathematics
ISSN printed version: 1311-8080
ISSN on-line version: 1314-3395