Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments January 11, 1994 erstellt
Description:
In this paper it is demonstrated that the interactive relationship between Bondd-Option prices and additive shift in the yield-curve are of such a complexity that a second order Taylor expansion is not sufficient to capture the interest rate risk of Bond-Options. For that reason a 3. order approximation is suggested and this extension is demonstrated to be both neccesary and sufficient.A detailed analysis of hedging with Bond-Options was also performed and in this case it is explicitly shown how each risk-factor can be hedged keeping in mind a target risk for each risk-factor.Some considerations regarding the estimation of historical volatility is also being analysed