Options on Bonds: Implied Volatilities from Affine Short-Rate Dynamics (2106.04518v1)

Published 8 Jun 2021 in q-fin.MF

Abstract: We derive an explicit asymptotic approximation for the implied volatilities of Call options written on bonds assuming the short-rate is described by an affine short-rate model. For specific affine short-rate models, we perform numerical experiments in order to gauge the accuracy of our approximation.

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