AN INTEGRATED APPROACH TO THE HEDGING AND PRICING OF EURODOLLAR DERIVATIVES

Authors
JARROW RA TURNBULL SM
Citation
Ra. Jarrow et Sm. Turnbull, AN INTEGRATED APPROACH TO THE HEDGING AND PRICING OF EURODOLLAR DERIVATIVES, The Journal of risk and insurance, 64(2), 1997, pp. 271-299
Citations number
27
Categorie Soggetti
Business Finance
Journal title
The Journal of risk and insurance → ACNP
ISSN journal
00224367
Volume
64
Issue
2
Year of publication
1997
Pages
271 - 299
Database
ISI
SICI code
0022-4367(1997)64:2<271:AIATTH>2.0.ZU;2-3
Abstract
Taking the term structure of Treasury securities and Eurodollar rates as exogenous, this article provides an integrated approach to the pric ing and hedging of London Inter-bank Offer Rate (LIBOR) derivatives. O ur approach allows the spread between Eurodollar and Treasury rates to reflect both the credit risk in holding Eurodollar deposits and a con venience yield from holding Treasury securities. This integrated appro ach includes the models of Babbs (1991), Grinblatt (1994), and Jarrow and Turnbull (1995) as special eases.