Stochastic Interest Rate and Stochastic Volatility Models of Currency Futures Options PDF Download
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Author: Thadavillil Jithendranathan
Publisher:
ISBN:
Category : Financial futures
Languages : en
Pages : 210
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Book Description
Author: Thadavillil Jithendranathan
Publisher:
ISBN:
Category : Financial futures
Languages : en
Pages : 210
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Book Description
Author: Shijun Liu
Publisher:
ISBN:
Category :
Languages : en
Pages : 37
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Book Description
We first derive closed form solutions for currency options, currency futures, future options and the term structures of interest rates in a diffusion-jump model of stochastic interest rate, stochastic volatility and time varying jump intensity in currency price. We demonstrate that the introduction of constant jump intensity in the nominal stochastic discount factor shifts the whole term structure of interest rates vertically but has no influence on its shape. However, when the jump intensity is endogenous (time varying) the shape of the term structure is influenced through the factor sensitivity of interest rates. We also document considerable improvement in currency option pricing precision over alternative models if the true model is diffusion-jump with endogenous intensity in a simulation experiment. We conclude that allowing for multidimensional interaction is of significant qualitative and quantitative importance for the pricing of currency options and for understanding the shape of the term structure.
Author: Ako Doffou
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
We investigate the effects of stochastic interest rates and jumps in the spot exchange rate on the pricing of currency futures, forwards and futures options. The proposed model extends Bates' model by allowing both the domestic and foreign interest rates to move around randomly, in a generalized Vasicek term-structure framework. Numerical examples show that the model prices of European currency futures options are similar to those given by Bates' and Black's models in the absence of jumps and when the volatilities of the domestic and foreign interest rates and futures price are negligible. Changes in these volatilities affect the futures options prices. bates' and Black's models underprice the European currency futures options in both the presence and the absence of jumps. The mispricing increases with the volatilities of interest rates and futures prices.
Author: Ren-Raw Chen
Publisher:
ISBN:
Category :
Languages : en
Pages : 43
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Book Description
In this paper, we examine possible stochastic volatility and jumps in short-term interest rates for four major countries: US, UK, Germany and Japan. An econometric model with stochastic volatility and jumps in both rates and volatility is derived and fit to the daily data for futures interest rates in four major currencies and the model provides a better fit for the empirical distributions. The distributions for changes in Eurocurrency interest rate futures are leptokurtic with fat tails and an unusually large percentage of observations concentrated at zero. The implied volatilities for at-the-money options on interest rate futures reveal evidence of stochastic volatility, as well as jumps in volatility.
Author: Mariusz Tamborski
Publisher:
ISBN:
Category : Currency convertibility
Languages : en
Pages : 52
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Book Description
Author: Alexander van Haastrecht
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
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Book Description
In this paper we extend the stochastic volatility model of Schouml;bel and Zhu (1999) by including stochastic interest rates. Furthermore we allow all driving model factors to be instantaneously correlated with each other, i.e. we allow for a correlation between the instantaneous interest rates, the volatilities and the underlying stock returns. By deriving the characteristic function of the log-asset price distribution, we are able to price European stock options in closed-form by Fourier inversion. Furthermore we present a Foreign Exchange generalization and show how the pricing of Forward-starting options like cliquets can be performed. Additionally we discuss the practical implementation of these new models.
Author: Zhaohui Chen
Publisher: World Scientific
ISBN: 9789810226190
Category : Business & Economics
Languages : en
Pages : 224
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Book Description
This volume is a collection of classical and recent empirical studies of currency options and their implications for issues of exchange rate economics, such as exchange rate risk premium, volatility, market expectations, and credibility of exchange rate regimes. It contains applications on how to extract useful information from option market data for financial forecasting policy purposes. The subjects are discussed in a self-contained, user-friendly format, with introductory chapters on currency option theory and currency option markets. The book can be used as supplementary reading for graduate finance and international economics courses, as training material for central bank and regulatory authorities, or as a reference book for financial analysts.
Author: Iain J. Clark
Publisher: John Wiley & Sons
ISBN: 1119978602
Category : Business & Economics
Languages : en
Pages : 308
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Book Description
This book covers foreign exchange options from the point of view of the finance practitioner. It contains everything a quant or trader working in a bank or hedge fund would need to know about the mathematics of foreign exchange—not just the theoretical mathematics covered in other books but also comprehensive coverage of implementation, pricing and calibration. With content developed with input from traders and with examples using real-world data, this book introduces many of the more commonly requested products from FX options trading desks, together with the models that capture the risk characteristics necessary to price these products accurately. Crucially, this book describes the numerical methods required for calibration of these models – an area often neglected in the literature, which is nevertheless of paramount importance in practice. Thorough treatment is given in one unified text to the following features: Correct market conventions for FX volatility surface construction Adjustment for settlement and delayed delivery of options Pricing of vanillas and barrier options under the volatility smile Barrier bending for limiting barrier discontinuity risk near expiry Industry strength partial differential equations in one and several spatial variables using finite differences on nonuniform grids Fourier transform methods for pricing European options using characteristic functions Stochastic and local volatility models, and a mixed stochastic/local volatility model Three-factor long-dated FX model Numerical calibration techniques for all the models in this work The augmented state variable approach for pricing strongly path-dependent options using either partial differential equations or Monte Carlo simulation Connecting mathematically rigorous theory with practice, this is the essential guide to foreign exchange options in the context of the real financial marketplace.
Author: Nicolas Privault
Publisher: World Scientific
ISBN: 9811226628
Category : Mathematics
Languages : en
Pages : 373
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Book Description
This book introduces the mathematics of stochastic interest rate modeling and the pricing of related derivatives, based on a step-by-step presentation of concepts with a focus on explicit calculations. The types of interest rates considered range from short rates to forward rates such as LIBOR and swap rates, which are presented in the HJM and BGM frameworks. The pricing and hedging of interest rate and fixed income derivatives such as bond options, caps, and swaptions, are treated using forward measure techniques. An introduction to default bond pricing and an outlook on model calibration are also included as additional topics.This third edition represents a significant update on the second edition published by World Scientific in 2012. Most chapters have been reorganized and largely rewritten with additional details and supplementary solved exercises. New graphs and simulations based on market data have been included, together with the corresponding R codes.This new edition also contains 75 exercises and 4 problems with detailed solutions, making it suitable for advanced undergraduate and graduate level students.
Author: David F. DeRosa
Publisher: John Wiley & Sons
ISBN: 9780471252672
Category : Business & Economics
Languages : en
Pages : 414
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Book Description
Mit über einer Billion US Dollar Umsatz stellt der Devisenhandel weltweit den größten Markt dar. In diesem Markt sind Währungsderivate zu einem bevorzugten Handelsinstrument geworden, das von Großbanken, Brokerhäusern, Hedge Funds (spekulativ ausgerichteter Fonds, der mit Hilfe von Derivaten seine Gewinne zu optimieren versucht) und Handelsberatern eingesetzt wird. Zwar sind diese Instrumente heute komplexer denn je, aber sie sind ein unverzichtbares Mittel des Risikomanagements im Devisenhandel. Herausgegeben von führenden Devisenhändlern und Analysten, ist dieses Buch Basislektüre für jeden, der sich in diesem Bereich bewegt. Eine Sammlung der 20 besten und meist zitierten Beiträge zu Währungsderivaten, Preistheorie und Anwendungen von Hedging-Methoden (10/98)
