Article citationsMore>>

Heston, S.L. and Nandi, S. (2015) A Discrete-Time Two-Factor Model for Pricing Bonds and Interest Rate Derivatives under Random Volatility. SSRN Electronic Journal.

has been cited by the following article:

• TITLE: EURIBOR Market Modeling and Monte Carlo Pricing of Caps Interest Rate Derivatives

  AUTHORS: Enock N. Mokaya

  KEYWORDS: Euribor Market Model, Stochastic Processes, Martingale Probability

  JOURNAL NAME: Journal of Mathematical Finance, Vol.16 No.2, May 14, 2026

  ABSTRACT: The main task in this essay entails modeling a finite sequence of forward Euribor interest rates as continuous-time stochastic processes under several equivalent martingale probability measures, and in particular, under the terminal measure. To achieve this, we consider a continuous trading economy that is free from arbitrage, and further proceed to implement a Monte Carlo method for pricing interest rate derivatives such as caps and caplets within these forward Euribor rate processes. We briefly review tools for stochastic differential equations and use this knowledge to construct the equation describing the dynamics of the Euribor market model, wherein prices of trading assets become martingales.