Pricing Models for Bermudan-style Interest Rate Derivatives
Author : Raoul Pietersz
Publisher :
Page : 209 pages
File Size : 12,47 MB
Release : 2005
Category :
ISBN : 9789058920997
Modern Pricing of Interest-Rate Derivatives
Author : Riccardo Rebonato
Publisher : Princeton University Press
Page : 486 pages
File Size : 20,14 MB
Release : 2012-01-16
Category : Business & Economics
ISBN : 1400829321
Book Description
In recent years, interest-rate modeling has developed rapidly in terms of both practice and theory. The academic and practitioners' communities, however, have not always communicated as productively as would have been desirable. As a result, their research programs have often developed with little constructive interference. In this book, Riccardo Rebonato draws on his academic and professional experience, straddling both sides of the divide to bring together and build on what theory and trading have to offer. Rebonato begins by presenting the conceptual foundations for the application of the LIBOR market model to the pricing of interest-rate derivatives. Next he treats in great detail the calibration of this model to market prices, asking how possible and advisable it is to enforce a simultaneous fitting to several market observables. He does so with an eye not only to mathematical feasibility but also to financial justification, while devoting special scrutiny to the implications of market incompleteness. Much of the book concerns an original extension of the LIBOR market model, devised to account for implied volatility smiles. This is done by introducing a stochastic-volatility, displaced-diffusion version of the model. The emphasis again is on the financial justification and on the computational feasibility of the proposed solution to the smile problem. This book is must reading for quantitative researchers in financial houses, sophisticated practitioners in the derivatives area, and students of finance.
Interest Rate Swaps and Their Derivatives
Author : Amir Sadr
Publisher : John Wiley & Sons
Page : 276 pages
File Size : 27,54 MB
Release : 2009-09-09
Category : Business & Economics
ISBN : 0470443944
Book Description
An up-to-date look at the evolution of interest rate swaps and derivatives Interest Rate Swaps and Derivatives bridges the gap between the theory of these instruments and their actual use in day-to-day life. This comprehensive guide covers the main "rates" products, including swaps, options (cap/floors, swaptions), CMS products, and Bermudan callables. It also covers the main valuation techniques for the exotics/structured-notes area, which remains one of the most challenging parts of the market. Provides a balance of relevant theory and real-world trading instruments for rate swaps and swap derivatives Uses simple settings and illustrations to reveal key results Written by an experienced trader who has worked with swaps, options, and exotics With this book, author Amir Sadr shares his valuable insights with practitioners in the field of interest rate derivatives-from traders and marketers to those in operations.
Valuation of Exotic Interest Rate Derivatives - Bermudans and Range Accruals
Author : Harvey J. Stein
Publisher :
Page : 75 pages
File Size : 14,13 MB
Release : 2007
Category :
ISBN :
Book Description
Exotic interest rate derivatives are hard to value. Care must be taken to make sure that sources of volatility that impact the contingent claim are properly modeled, and that appropriate relationships are maintained between the underlying rates involved.In this presentation, we outline the issues involved in valuing exotics. We review valuation issues for interest rate derivatives in general, and for caps, floors and swaptions. We outline a pricing methodology and apply it to Bermudan swaptions, range accruals, callable range accruals, spread options and callable spread range accruals.Outline: - Review of interest rate modeling - Handling of vanilla options - - Forward Libor and swap rates - - Caps and Floors - - Swaptions - - Cap stripping - - Smile lifting - Bermudan valuation - - Hedging Bermudans - - LGM model specification of the HW model - - Pricing cashflows and options under the LGM model - - Model calibration - - Numerical methods - Digital options - - Pricing via vanillas. - Range accruals - - Pricing as a portfolio of digitals - - Convexity adjustment - Change of measure and approximation - Callable range accruals - - Pricing under the one factor LGM model - - - Model calibration. - - - Use of control variates (adjusters). - - Calibration and pricing under the two factor LGM model - - - Model calibration. - Spread range accruals - - Pricing under the two factor LGM model.
Interest Rate Derivatives Explained: Volume 2
Author : Jörg Kienitz
Publisher : Springer
Page : 261 pages
File Size : 27,66 MB
Release : 2017-11-08
Category : Business & Economics
ISBN : 1137360194
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.
Robust Libor Modelling and Pricing of Derivative Products
Author : John Schoenmakers
Publisher : CRC Press
Page : 219 pages
File Size : 44,86 MB
Release : 2005-03-29
Category : Mathematics
ISBN : 1135436754
Book Description
One of Riskbook.com's Best of 2005 - Top Ten Finance Books The Libor market model remains one of the most popular and advanced tools for modelling interest rates and interest rate derivatives, but finding a useful procedure for calibrating the model has been a perennial problem. Also the respective pricing of exotic derivative products such as Bermudan callable structures is considered highly non-trivial. In recent studies, author John Schoenmakers and his colleagues developed a fast and robust implied method for calibrating the Libor model and a new generic procedure for the pricing of callable derivative instruments in this model. Within a compact, self-contained review of the requisite mathematical theory on interest rate modelling, Robust Libor Modelling and Pricing of Derivative Products introduces the author's new approaches and their impact on Libor modelling and derivative pricing. Discussions include economically sensible parametrisations of the Libor market model, stability issues connected to direct least-squares calibration methods, European and Bermudan style exotics pricing, and lognormal approximations suitable for the Libor market model. A look at the available literature on Libor modelling shows that the issues surrounding instabilty of calibration and its consequences have not been well documented, and an effective general approach for treating Bermudan callable Libor products has been missing. This book fills these gaps and with clear illustrations, examples, and explanations, offers new methods that surmount some of the Libor model's thornier obstacles.
A Multifactor Spot Rate Model for the Pricing of Interest Rate Derivatives
Author : Sandra Peterson
Publisher :
Page : pages
File Size : 39,61 MB
Release : 2003
Category :
ISBN :
Book Description
We propose a multifactor model in which the spot rate, LIBOR, follows a lognormal process, with a stochastic conditional mean, under the risk-neutral measure. In addition to the spot rate factor, the second factor is related to the premium of the first futures rate over the spot LIBOR. Similarly, the third factor is related to the premium of the second futures rate over the first futures rate. We calibrate the model to the initial term structure of futures rates and to the implied volatilities of interest rate caplets. We then apply the model to price interest rate derivatives such as European-style and Bermudan-style swaptions, and yield-spread options. The model can be employed to price more complex interest rate derivatives, for example, path-dependent derivatives or multi-currency-dependent derivatives, because of its Markovian property.
Efficient Methods for Valuing Interest Rate Derivatives
Author : Antoon Pelsser
Publisher : Springer Science & Business Media
Page : 177 pages
File Size : 30,10 MB
Release : 2013-03-09
Category : Mathematics
ISBN : 1447138880
Book Description
This book provides an overview of the models that can be used for valuing and managing interest rate derivatives. Split into two parts, the first discusses and compares the traditional models, such as spot- and forward-rate models, while the second concentrates on the more recently developed Market models. Unlike most of his competitors, the author's focus is not only on the mathematics: Antoon Pelsser draws on his experience in industry to explore a host of practical issues.
A Perturbative Approach to Bermudan Options Pricing
Author : Roberto Baviera
Publisher :
Page : 18 pages
File Size : 22,85 MB
Release : 2006
Category :
ISBN :
Book Description
In this letter we address the problem of the valuation of Bermudan option derivatives in the framework of multi-factor interest rate models. We propose a solution in which the exercise decision entails a properly defined series expansion. The method allows the fast computation of both a lower and an upper bound of the option price, and a tight control of its accuracy. We show detailed computations in the case of the Bond Market Model. As examples we consider the case of a Zero Coupon Bermudan option and a Coupon Bearing Bermudan option.
Pricing Interest Rate Risk Derivatives Using Binomial Trees with MATLAB
Author : Alexander Esse
Publisher : GRIN Verlag
Page : 38 pages
File Size : 34,1 MB
Release : 2018-06-14
Category : Business & Economics
ISBN : 366872637X
Book Description
Seminar paper from the year 2017 in the subject Business economics - Investment and Finance, grade: 1,00, University of Tubingen, language: English, abstract: In this assignment we approximate Oldrich Vasicek's (1977) term structure model with a binomial approach and show that it is convenient to use a recombining binomial tree to value interest rate derivatives in the Vasicek model. First, we illustrate that our applied binomial approximations converge to the dynamic continuous-time Vasicek model with an increasing number of time steps (subperiods). Furthermore, we apply the binomial approach to value a Discount Bond, Coupon Bond and a Futures Contract on both a Discount and Coupon Bond. The resulting approximations will be compared to the respective analytical solution, which we use as a benchmark. Thirdly, we determine the fair value of both an European and American Call and Put on a Discount Bond and Coupon Bond, respectively. We demonstrate that our estimated binomial prices converge with an increasing number of time steps. Moreover, we analyze both the behaviour of a Sraddle on a Discount Bond and the Early Exercise Premium of the considered American Options as a function of spot interest rates. We obtain all results shown in this report from the software "Matlab". Hence, the submitted "m.files" should be taken as a reference for a better understanding of the calculation procedures described in this report (Relevant Code is depicted in the Appendices). Furthermore, to reduce computational effort and required time to run our code we apply a joint calculation of specific approximations rather than run a code individually for each Task. This is mainly because some specific securities and interest rate derivatives require the same underlying and identical matrices of the interest rates and transition probabilities from the binomial trees for the approximation procedure. This approach is suitable because we apply the identical number of subperiods for specific Tasks and, thus, for the respective securities and or derivatives.
