An empirical comparison of forward-rate and spot-rate models for valuing interest-rate options

Authors
Buhler, W Uhrig-Homburg, M Walter, U Weber, T
Citation
W. Buhler et al., An empirical comparison of forward-rate and spot-rate models for valuing interest-rate options, J FINANCE, 54(1), 1999, pp. 269-305
Citations number
34
Categorie Soggetti
Economics
Journal title
JOURNAL OF FINANCE
ISSN journal
00221082 → ACNP
Volume
54
Issue
1
Year of publication
1999
Pages
269 - 305
Database
ISI
SICI code
0022-1082(199902)54:1<269:AECOFA>2.0.ZU;2-O
Abstract
Our main goal is to investigate the question of which interest-rate options valuation models are better suited to support the management of interest-r ate risk. We use the German market to test seven spot-rate and forward-rate models with one and two factors for interest-rate warrants for the period from 1990 to 1993. We identify a one-factor forward-rate model and two spot -rate models with two factors that are not significantly outperformed by an y of the other four models. Further rankings are possible if additional cri teria are applied.