Estimating the Term Structure of Interest Rates and the Pricing of Interest Rate Derivatives PDF Download
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Author: Iwan Meier
Publisher:
ISBN: 9783952041642
Category :
Languages : en
Pages : 209
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Book Description
Author: Iwan Meier
Publisher:
ISBN: 9783952041642
Category :
Languages : en
Pages : 209
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Book Description
Author: Rajna Gibson
Publisher: Now Publishers Inc
ISBN: 1601983727
Category : Business & Economics
Languages : en
Pages : 171
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Book Description
Modeling the Term Structure of Interest Rates provides a comprehensive review of the continuous-time modeling techniques of the term structure applicable to value and hedge default-free bonds and other interest rate derivatives.
Author: Massoud Heidari
Publisher:
ISBN:
Category :
Languages : en
Pages : 44
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Book Description
Dynamic term structure models price interest rate options based on the model-implied fair values of the yield curve, ignoring any pricing residuals on the yield curve that are either from model approximations or market imperfections. In contrast, option pricing in practice often takes the market observed yield curve as given and focuses exclusively on the specification of the volatility structure of forward rates. Thus, if any errors exist on the observed yield curve, they will be carried over permanently. In this paper, we propose an m+n model structure that bridges the gap between the two approaches and consistently prices both interest rates and interest rate options. The first m factors capture the systematic movement of the yield curve, whereas the latter n factors capture the impacts of the yield curve residuals on option pricing. We estimate a 3+3 Gaussian affine example using eight years of data on U.S. dollar LIBOR, swap rates, and interest rate caps. The model performs well in pricing both interest rates and interest rate caps. Furthermore, estimation shows that small residuals on the yield curve can have large impacts on pricing interest rate caps. Under the estimated model, the three yield curve factors explain over 99 percent of the variation on the yield curve, but account for less than 50 percent of the variation on cap implied volatilities. Incorporating the three residual factors improves the explained variance on cap implied volatility to over 99 percent.
Author: Ken O. Kortanek
Publisher: John Wiley & Sons
ISBN:
Category : Business & Economics
Languages : en
Pages : 248
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Book Description
This book offers a new approach to interest rate and modeling term structure by using models based on optimization of dynamical systems, rather than the traditional stochastic differential equation models. The authors use dynamic models to estimate the term structure of interest rates and show the reader how to build their own numerical simulations. It includes software that will enable readers to simulate the various models covered in the book.
Author: John L. Knight
Publisher:
ISBN:
Category : Derivative securities
Languages : en
Pages : 60
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Book Description
Proposes a non-parametric two-factor term-structure model that imposes no restrictions on the functional forms of the diffusion functions.
Author: Jörg Kienitz
Publisher: Springer
ISBN: 1137360194
Category : Business & Economics
Languages : en
Pages : 261
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Book Description
This book on Interest Rate Derivatives has three parts. The first part is on financial products and extends the range of products considered in Interest Rate Derivatives Explained I. In particular we consider callable products such as Bermudan swaptions or exotic derivatives. The second part is on volatility modelling. The Heston and the SABR model are reviewed and analyzed in detail. Both models are widely applied in practice. Such models are necessary to account for the volatility skew/smile and form the fundament for pricing and risk management of complex interest rate structures such as Constant Maturity Swap options. Term structure models are introduced in the third part. We consider three main classes namely short rate models, instantaneous forward rate models and market models. For each class we review one representative which is heavily used in practice. We have chosen the Hull-White, the Cheyette and the Libor Market model. For all the models we consider the extensions by a stochastic basis and stochastic volatility component. Finally, we round up the exposition by giving an overview of the numerical methods that are relevant for successfully implementing the models considered in the book.
Author: Mark Deacon
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper examines various techniques used to estimate the term structure of interest rates from the prices of government bonds; in particular comparing the current Bank of England model with two approaches suggested in the academic literature. There are two main aspects of this problem: estimating the relationship between bond yields and maturity, and the relationship between bond yields and coupon. The paper outlines how these problems are approached by the three models, and compares them on both theoretical and practical grounds. It concludes that there is a trade-off between theoretical rigour and practical considerations.
Author: Frank J. Fabozzi
Publisher: John Wiley & Sons
ISBN: 047144698X
Category : Business & Economics
Languages : en
Pages : 530
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Book Description
This ultimate guide contains an excellent blend of theory and practice This comprehensive guide covers various aspects of model building for fixed income securities and derivatives. Filled with expert advice, valuable insights, and advanced modeling techniques, Interest Rate, Term Structure, and Valuation Modeling is a book that all institutional investors, portfolio managers, and risk professionals should have. John Wiley & Sons, Inc. is proud to be the publisher of the esteemed Frank J. Fabozzi Series. Comprising nearly 100 titles-which include numerous bestsellers—The Frank J. Fabozzi Series is a key resource for finance professionals and academics, strategists and students, and investors. The series is overseen by its eponymous editor, whose expert instruction and presentation of new ideas have been at the forefront of financial publishing for over twenty years. His successful career has provided him with the knowledge, insight, and advice that has led to this comprehensive series. Frank J. Fabozzi, PhD, CFA, CPA, is Editor of the Journal of Portfolio Management, which is read by thousands of institutional investors, as well as editor or author of over 100 books on finance for the professional and academic markets. Currently, Dr. Fabozzi is an adjunct Professor of Finance at Yale University's School of Management and on the board of directors of the Guardian Life family of funds and the Black Rock complex of funds.
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1455209589
Category : Business & Economics
Languages : en
Pages : 64
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Book Description
This paper discusses the estimation of models of the term structure of interest rates. After reviewing the term structure models, specifically the Nelson-Siegel Model and Affine Term- Structure Model, this paper estimates the terms structure of Treasury bond yields for the United States with pre-crisis data. This paper uses a software developed by Fund staff for this purpose. This software makes it possible to estimate the term structure using at least nine models, while opening up the possibility of generating simulated paths of the term structure.
Author: Jan R. M. Röman
Publisher: Springer
ISBN: 3319525840
Category : Business & Economics
Languages : en
Pages : 741
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Book Description
Analytical Finance is a comprehensive introduction to the financial engineering of equity and interest rate instruments for financial markets. Developed from notes from the author’s many years in quantitative risk management and modeling roles, and then for the Financial Engineering course at Mälardalen University, it provides exhaustive coverage of vanilla and exotic mathematical finance applications for trading and risk management, combining rigorous theory with real market application. Coverage includes: • Date arithmetic’s, quote types of interest rate instruments • The interbank market and reference rates, including negative rates• Valuation and modeling of IR instruments; bonds, FRN, FRA, forwards, futures, swaps, CDS, caps/floors and others • Bootstrapping and how to create interest rate curves from prices of traded instruments• Risk measures of IR instruments• Option Adjusted Spread and embedded options• The term structure equation, martingale measures and stochastic processes of interest rates; Vasicek, Ho-Lee, Hull-While, CIR• Numerical models; Black-Derman-Toy and forward induction using Arrow-Debreu prices and Newton–Raphson in 2 dimension• The Heath-Jarrow-Morton framework• Forward measures and general option pricing models• Black log-normal and, normal model for derivatives, market models and managing exotics instruments• Pricing before and after the financial crisis, collateral discounting, multiple curve framework, cheapest-to-deliver curves, CVA, DVA and FVA
