Year: 2025
Type: article
Abstract: This paper presents a new model of the term structure of interest rates that is based on the continuous Ho–Lee one. In this model, we suggest that the drift and volatility coefficients depend additionally on a generalized inverse Gaussian (GIG) distribution. Analytical expressions for the bond price and its moments are found in the new GIG continuous Ho–Lee model. Also, we compute in this model the prices of European call and put options written on bond. The obtained formulas are determined by the values of the Humbert confluent hypergeometric function of two variables. A numerical experiment shows that the third and fourth moments of the bond prices differentiate substantially in the continuous Ho–Lee and GIG continuous Ho–Lee models.
Source: Computation
Author: Roman V. Ivanov
Institution: V. A. Trapeznikov Institute of Control Sciences
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $2,172
OpenAlex ID: W4409606709