Sonono, Masimba EnergyMashele, Hopolang Phillip2017-05-152017-05-152016Sonono, M.E. & Mashele, H.P. 2016. Estimation of bid-ask prices for options on LIBOR based instruments. Finance research letters, 19:33-41. [https://doi.org/10.1016/j.frl.2016.05.013]1544-61231544-6131 (Online)http://hdl.handle.net/10394/23255https://doi.org/10.1016/j.frl.2016.05.013http://www.sciencedirect.com/science/article/pii/S1544612316300988?via%3DihubInterest rate options are the most liquid traded derivatives in the markets. We observe the following from the markets: (i) Market dealers usually quote the mid-price. The mid-price is a subjective and hypothetical price. (ii) OTC interest rate options market are incomplete, and options cannot always be costlessly replicated. (iii) The bid-ask prices are not widely available for the market as a whole. With these observations in mind, we propose an approach to estimate the bid-ask prices for options on LIBOR based instruments. In particular, we assess the proposed approach in the determination of premiums for caps and floorsenInterest rateLIBORCapsFloorsBid-ask pricesWang transformArticle