Banking Investigate

Decision-Making for Investment Based on Option and Term Structure

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Executive Summary

Static and dynamic term structure model of interest rates are studied according to the need for using. As for the static model, exponential splines model is studied and every cash flow of the project is discounted relatively accurately by getting the model of discount rate. As for the dynamic model, a basic model is studied, and the option pricing formula under changing risk-free rate is gotten by bringing it into the option pricing formula. And then a complex model which is more approaching the fact is used to describe the moving pattern of risk-free interest rates and the former formula that have been educed is modified. Finally, Empirical research is carried on based on the data of Chinese financial market.

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