New formula revolutionizes pricing of Mid-Curve Money Market Future Options!
The article describes a model for pricing Mid-Curve Money Market Future Options based on a lognormal process for forward money market rates. By using path integral techniques, the researchers derived an analytic pricing formula for these options, taking into account the discount bond price volatility. This approach allows for the calculation of a convexity adjustment factor, leading to an explicit analytic pricing formula for Mid-Curve future options.