scholarly journals BACK-OF-THE-ENVELOPE SWAPTIONS IN A VERY PARSIMONIOUS MULTI-CURVE INTEREST RATE MODEL

2019 ◽  
Vol 22 (05) ◽  
pp. 1950027
Author(s):  
ROBERTO BAVIERA
Keyword(s):  
Interest Rate ◽  
Derivative Securities ◽  
Rate Model ◽  
Elementary Model ◽  
Interest Rate Derivatives ◽  
Proposed Model ◽  
Interest Rate Model ◽  
Interest Rate Derivative ◽  
Curve Extension ◽  
Two Parameter

We propose an elementary model in multi-curve setting that allows to price with simple exact closed formulas European swaptions. Swaptions can be both physical delivery and cash-settled ones. The proposed model is very parsimonious: it is a three-parameter multi-curve extension of the two-parameter J. Hull & A. White (1990) [Pricing interest-rate-derivative securities. Review of Financial Studies 3(4), 573–592] model. The model allows also to obtain simple formulas for all other plain vanilla Interest Rate derivatives and convexity adjustments. Calibration issues are discussed in detail.

Pricing interest rate derivatives with model risk

2015 ◽  
Vol 02 (01) ◽  
pp. 1550003 ◽  
Author(s):  
Satoshi Hosokawa ◽  
Koichi Matsumoto
Keyword(s):  
Interest Rate ◽  
Rate Process ◽  
Rate Model ◽  
Model Risk ◽  
Interest Rate Derivatives ◽  
Volatility Model ◽  
Trinomial Model ◽  
Interest Rate Model ◽  
Interest Rate Derivative

This paper studies an interest rate derivative when there is the model risk in an interest rate model. We consider a mean reverting interest rate process whose volatility model is not known. Most of prices of interest rate derivatives cannot be determined uniquely, based on this interest rate model. We study the price bounds of a derivative and propose how to calculate the price bounds by a trinomial model. Further, we analyze the model risk of derivatives and their portfolios numerically.

Interest Rate Derivative Securities

2013 ◽  
pp. 277-345
Author(s):  
You-lan Zhu ◽  
Xiaonan Wu ◽  
I-Liang Chern ◽  
Zhi-zhong Sun
Keyword(s):  
Interest Rate ◽  
Derivative Securities ◽  
Interest Rate Derivative

scholarly journals DC Pension Plan with Refund of Contributions under Affine Interest Rate Model

2020 ◽  
pp. 1-16
Author(s):  
Udeme O. Ini ◽  
Obinichi C. Mandah ◽  
Edikan E. Akpanibah
Keyword(s):  
Interest Rate ◽  
Optimal Investment ◽  
Hjb Equation ◽  
Pension Scheme ◽  
Theoretic Approach ◽  
Rate Model ◽  
Risky Assets ◽  
Investment Plan ◽  
Interest Rate Model ◽  
The Impact

This paper studies the optimal investment plan for a pension scheme with refund of contributions, stochastic salary and affine interest rate model. A modified model which allows for refund of contributions to death members’ families is considered. In this model, the fund managers invest in a risk free (treasury) and two risky assets (stock and zero coupon bond) such that the price of the risky assets are modelled by geometric Brownian motions and the risk free interest rate is of affine structure. Using the game theoretic approach, an extended Hamilton Jacobi Bellman (HJB) equation which is a system of non linear PDE is established. Furthermore, the extended HJB equation is then solved by change of variable and variable separation technique to obtain explicit solutions of the optimal investment plan for the three assets using mean variance utility function. Finally, theoretical analyses of the impact of some sensitive parameters on the optimal investment plan are presented.

scholarly journals Nonparametric estimation and specification testing of a two-factor interest rate model

2021 ◽  
Author(s):  
Brennan Scott Thompson
Keyword(s):  
Interest Rate ◽  
Nonparametric Estimation ◽  
Rate Model ◽  
Specification Testing ◽  
Interest Rate Model

Nonparametric estimation and specification testing of a two-factor interest rate model

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