Pricing Interest Rate Derivatives in a Non-Parametric Two-Factor Term-Structure Model

1999 ◽  
Author(s):  
John L. Knight ◽  
Fuchun Li ◽  
Mingwei Yuan
Keyword(s):  
Interest Rate ◽  
Term Structure ◽  
Structure Model ◽  
Interest Rate Derivatives ◽  
Term Structure Model ◽  
Non Parametric

Pricing KTB Futures: An Application of Black-Karasinski Model

2002 ◽  
Vol 10 (2) ◽  
pp. 1-23
Author(s):  
Jang Gu Kang ◽  
Jeong Jin Lee
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Futures Contracts ◽  
Structure Model ◽  
Market Prices ◽  
Interest Rate Derivatives ◽  
Term Structure Model ◽  
Cost Of Carry ◽  
The Cost ◽  
Very High

Traditionally, people values KTB futures contracts using the model based on the cost-of-carry argument. However, the underlying commodity for the KTB futures is non-tradable, and so the cost of carry argument cannot be applied to the KTB futures. This paper regards KTB futures contracts as interest-rate derivatives, and prices them using the Black-Karasinski (B-K) term structure model. This paper documents that (1) the market prices of KTB futures are more close to B-K model price than the price by the cost-of-carry argument, though the KTB futures are generally underpriced in the market even under the B-K model; (2) The extent of underpricing is a decreasing function of the remaining maturity of the futures, and becomes smaller recently; (3) The cost of carry argument relatively overprices the KTB futures, and the degree of overpricing is a decreasing function of interest rates and the remaining maturity of the futures; (4) The daily resettlement in the futures contracts affects the futures price very little; (5) The trading strategies based on the theoretical pricing models produce very high trading profit.

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 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.

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

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
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