Published June 19, 2022
| Version v1
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Digital Option Analytics
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This article presents a pricing model for skewed European interest rate digital option. The traditional pricing model is under the Black-Scholes framework. The new skew-adjusted model replicates a digital option by a portfolio of vanilla call options, and/or zero-coupon bonds and/or floating rate notes (FRNs). The new model provides a better approach to pricing skewed European interest rate digital options.
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