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
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.