NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

On the Determinants of the Value of Call Options on Default-Free Bonds

Stephen A. Buser, Patric H. Hendershott, Anthony B. Sanders

NBER Working Paper No. 2529
Issued in March 1988
NBER Program(s):   ME

Models of interest-dependent claims that imply similar term structures and levels of interest rate volatility also produce similar estimates of bond option values. This result is established for simple option forms with known closed-form solutions as well as for more complex options that require numerical methods for evaluation. The finding is confirmed for a wide range of economic conditions, and it is robust with respect to the number and nature of factors that generate interest-rate movements.

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Document Object Identifier (DOI): 10.3386/w2529

Published: Journal of Business, January 1990, Part 2, pp. 533-550.

 
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