Moment generating function approach to pricing interest rate and foreign exchange rate claims

This paper uses moment generating functions to provide a general framework to model international term structures and to price interest rate and foreign exchange rate claims. When moment generating functions of state variables have a closed-form formula, closed-form formulas for bond prices are available for a large variety of functional forms for the state price density. When state price densities are specified as exponential functions of Ornstein–Uhlenbeck processes or Cox–Ingersoll–Ross processes, closed-form formulas can be obtained for interest rate and foreign exchange rate futures, options and swaps.