TY  - JOUR
AU  - Das,Sanjiv Ranjan
TI  - An Efficient Generalized Discrete-Time Approach to Poisson-Gaussian Bond Option Pricing in the Heath-Jarrow-Morton Model
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 212
PY  - 1997
Y2  - June 1997
UR  - http://www.nber.org/papers/t0212
L1  - http://www.nber.org/papers/t0212.pdf
N1  - Author contact info:
Sanjiv Das
Dept. of Finance
Santa Clara University
321E Lucas Hall, 500 El Camino Real
Santa Clara, CA 95053
E-Mail: srdas@scu.edu
AB  - Term structure models employing Poisson-Gaussian processes may be used to accommodate the observed skewness and kurtosis of interest rates. This paper extends the discrete-time, pure-Gaussian version of the Heath-Jarrow-Morton model to the pricing" of American-type bond options when the underlying term structure of interest rates follows a Poisson-Gaussian process.  The Poisson-Gaussian process is specified using a hexanomial tree (six nodes emanating from each node), and the tree is shown to be recombining. The scheme is parsimonious and convergent.  This model extends the class of HJM models by (i) introducing a more generalized volatility specification than has been used so far, and (ii) inducting jumps, yet retaining lattice recombination, thus making the model useful for practical applications.
ER  -