Heath Jarrow Morton Model for Option Pricing with Discrete Investment Strategy

Abstract

A portfolio with discrete investment strategy on a discrete time underlying security was described and the closed form formulas for the pricing of Call and Put options were determined using the Heath Jarrow Morton (HJM) model. The model was tested with data generated from Nigeria stock exchange market. The results gotten from the model used shows that the pricing formula that we derived is efficient and reliable for mitigating risk and for predicting the market behavior.