A Skellam market model for loan prime rate options
针对中国新推出的以人民币贷款市场报价利率为标的的利率期权，提出基于Skellam分布的连续时间离散状态市场模型，并推导出无套利定价公式，建议用隐含强度而非隐含波动率报价。
Abstract This paper documents vanilla interest‐rate options newly introduced in China. The underlying rates are the RMB loan prime rates (LPRs), the foremost interest rates that matter to almost all businesses and households in China. They are digital with a tick size of five basis points, and the changes only occur monthly at predetermined announcement times. We propose a novel continuous‐time discrete‐state market model based on the integer‐valued Skellam distribution, and derive arbitrage‐free pricing formulas in closed forms. We advocate that it is more meaningful to quote LPR option prices in terms of implied intensity rather than implied volatility.