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Annals of Finance

11-03-2022 | Research Article

Options on bonds: implied volatilities from affine short-rate dynamics

Authors: Matthew Lorig, Natchanon Suaysom

Published in: Annals of Finance | Issue 2/2022

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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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Title: Options on bonds: implied volatilities from affine short-rate dynamics
Authors: Matthew Lorig
Natchanon Suaysom
Publication date: 11-03-2022
Publisher: Springer Berlin Heidelberg
Published in: Annals of Finance / Issue 2/2022
Print ISSN: 1614-2446
Electronic ISSN: 1614-2454
DOI: https://doi.org/10.1007/s10436-022-00407-w