Choice of Interest Rate Term Structure Model for Assets and Liability Management

2008 ◽  
Author(s):  
Zhenke Guan ◽  
Bing Gan ◽  
Aisha Khan ◽  
Ser-Huang Poon
Keyword(s):  
Interest Rate ◽  
Term Structure ◽  
Structure Model ◽  
Term Structure Model ◽  
Liability Management ◽  
Interest Rate Term Structure

BOND MARKET MODEL

2006 ◽  
Vol 09 (04) ◽  
pp. 577-596 ◽  
Author(s):  
ROBERTO BAVIERA
Keyword(s):  
Interest Rate ◽  
Term Structure ◽  
Bond Market ◽  
Market Model ◽  
Structure Model ◽  
Over The Counter ◽  
Term Structure Model ◽  
Libor Market Model ◽  
Bond Options ◽  
Interest Rate Term Structure

We describe the Bond Market Model, a multi-factor interest rate term structure model, where it is possible to price with Black-like formulas the three classes of over-the-counter plain vanilla options. We derive the prices of caps/floors, bond options and swaptions. A comparison with Libor Market Model and Swap Market Model is discussed in detail, underlining advantages and limits of the different approaches.

scholarly journals Measuring Interest Rate Risk with Embedded Option Using HPL-MC Method in Fuzzy and Stochastic Environment

2020 ◽  
Vol 2020 ◽  
pp. 1-13
Author(s):  
Enlin Tang ◽  
Wei Du
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Interest Rate Risk ◽  
Extended Model ◽  
Term Structure Model ◽  
Continuous Innovation ◽  
Liability Management ◽  
Rate Risk ◽  
Embedded Options

Under the condition of continuous innovation of financial derivatives and marketization of interest rate, interest rates fluctuate more frequently and fiercely, and the measurement of interest rate risk also attracts more attention. Under the premise that the fluctuation of interest rate follows fuzzy stochastic process, based on the option characteristics of financial instruments with embedded option, this paper takes effective duration and effective convexity as tools to measure interest rate risk when embedded options exist, tries to choose CIR extended model as term structure model, and uses the Monte Carlo method for hybrid low deviation sequences (HPL-MC) to analyze the prepayment characteristics of MBS, a representative financial instrument with embedded options, when interest rates fluctuate; on this basis, the effectiveness of effective duration management of interest rate risk is demonstrated with asset liability management cases of commercial banks.

scholarly journals Estimating the Monetary Policy Measures of Japan in Shadow/ZLB Term Structure Model

2019 ◽  
Vol 6 (6) ◽  
pp. 126
Author(s):  
Rui WANG
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Term Structure ◽  
Yield Curve ◽  
Quantitative Measure ◽  
Structure Model ◽  
Term Structure Model ◽  
Bond Yield ◽  
Public Expectation ◽  
Policy Measures

In this paper, we follow the estimation methodology proposed by Krippner (2015) and use Japanese government bond yield curve data to estimate a shadow/ZLB term structure model. This model provides three estimated monetary policy measures, SSR, ETZ and EMS, which can be used to gauge the stance of monetary in a consistent way in both ZLB and non-ZLB environment. Japan has experienced a long period of the ZLB since 1999. The policy rate has already lost its function as an appropriate quantitative measure of monetary policy. The SSR estimated from the shadow/ZLB term structure model can evolve to negative level in the ZLB environment and provide consistent view of the stance of monetary policy as the positive short policy interest rate dose in the normal non-ZLB environment. The ETZ answers the question that how long the short interest rate will be expected to be restricted by the ZLB, which can be useful for the central bank as a reference for exit strategy of unconventional monetary easing or forward guidance on public expectation formation. The EMS measures the stance of monetary policy, relatively tight or relatively loose, in a consistent and comparable way under both ZLB and non-ZLB environment. The analysis shows that all three measures exhibit very good traceability of monetary policy in Japan, which can also be used as the proxy variables for the stance of monetary policy in other econometric procedures for policy evaluation.

scholarly journals VALUATION OF GUARANTEED ANNUITY OPTIONS IN AFFINE TERM STRUCTURE MODELS

2007 ◽  
Vol 10 (02) ◽  
pp. 363-387 ◽  
Author(s):  
CHI CHIU CHU ◽  
YUE KUEN KWOK
Keyword(s):  
Interest Rate ◽  
Term Structure ◽  
Analytic Approximation ◽  
Approximation Methods ◽  
Term Structure Model ◽  
Stochastic Duration ◽  
Payoff Structure ◽  
Interest Rate Term Structure ◽  
The Interest Rate ◽  
The One

We propose three analytic approximation methods for numerical valuation of the guaranteed annuity options in deferred annuity pension policies. The approximation methods include the stochastic duration approach, Edgeworth expansion, and analytic approximation in affine diffusions. The payoff structure in the annuity policies is similar to a quanto call option written on a coupon-bearing bond. To circumvent the limitations of the one-factor interest rate model, we model the interest rate dynamics by a two-factor affine interest rate term structure model. The numerical accuracy and the computational efficiency of these approximation methods are analyzed. We also investigate the value sensitivity of the guaranteed annuity option with respect to different parameters in the pricing model.

A One-Factor Shifted Squared Gaussian Term Structure Model for Interest Rate Modeling

2015 ◽  
Vol 25 (3) ◽  
pp. 36-45 ◽  
Author(s):  
Vincenzo Russo ◽  
Frank J. Fabozzi
Keyword(s):  
Interest Rate ◽  
Term Structure ◽  
Structure Model ◽  
Term Structure Model

AN ALTERNATIVE INTEREST RATE TERM STRUCTURE MODEL

2005 ◽  
Vol 08 (06) ◽  
pp. 717-735 ◽  
Author(s):  
ECKHARD PLATEN
Keyword(s):  
Interest Rate ◽  
Term Structure ◽  
Market Price ◽  
Forward Rate ◽  
Term Structure Model ◽  
Forward Rates ◽  
Consistent Price System ◽  
Interest Rate Term Structure ◽  
The Interest Rate ◽  
Total Market

This paper proposes an alternative approach to the modeling of the interest rate term structure. It suggests that the total market price for risk is an important factor that has to be modeled carefully. The growth optimal portfolio, which is characterized by this factor, is used as reference unit or benchmark for obtaining a consistent price system. Benchmarked derivative prices are taken as conditional expectations of future benchmarked prices under the real world probability measure. The inverse of the squared total market price for risk is modeled as a square root process and shown to influence the medium and long term forward rates. With constant parameters and constant short rate the model already generates a hump shaped mean for the forward rate curve and other empirical features typically observed.

scholarly journals Choice of Interest Rate Term Structure Models for Assets and Liability Management

2008 ◽  
Author(s):  
Zhenke Guan ◽  
Bing Gan ◽  
Aisha Khan ◽  
Ser-Huang Poon
Keyword(s):  
Interest Rate ◽  
Term Structure ◽  
Term Structure Models ◽  
Liability Management ◽  
Interest Rate Term Structure
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