Mardi | 2009-05-19

Ramzi BEN-ABDALLAH – Hatem BEN-AMEUR – libre

The aim of this paper is to investigate the pricing of the Chicago Board ofTrade Treasury-Bond futures. The difficulty to price it arises from its multipleinter-dependent embedded delivery options, which can be exercised at varioustimes and dates during the delivery month. We consider a general Markov diffusionprocess model for stochastic interest rates and propose a pricing algorithmthat can handle all the delivery rules embedded in the CBOT T-bond futures.Our procedure combines dynamic programming, finite-elements approximation,and fixed-point evaluation. Numerical illustrations are provided under the onefactorVasicek (1977) and Cox-Ingesoll-Ross (1985) models, and under the timein-homogeneous Hull-White (1990) model.