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A Simple Model For Pricing Derivative Securities With Equity Interest Rate Default And Liquidity Risk
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Book Synopsis A Simple Model for Pricing Derivative Securities with Equity, Interest-Rate, Default and Liquidity Risk by : Sanjiv Ranjan Das
Download or read book A Simple Model for Pricing Derivative Securities with Equity, Interest-Rate, Default and Liquidity Risk written by Sanjiv Ranjan Das and published by . This book was released on 2009 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a model for pricing securities that may be a function of several different sources of risk, namely, equity, interest-rate, default and liquidity risks. The model is also useful for extracting probabilities of default (PDs) in a model with equity, interest rate and credit risk. The model is not based on the stochastic process for the value of the firm, but on the stochastic process for interest rates and the equity price, which are observable. The model comprises two components. First, a risk-neutral setting in which the joint process of interest rates and equity are modelled together with the boundary conditions for security payoffs. Second, the model is embedded on a recombining lattice generated using an approximation technique. This makes implementation of the pricing scheme feasible with polynomial complexity. We present a simple approach to calibration of the model to market observable data. The model is extensible to handling correlated default risk and may be used to value distressed convertible bonds, debt-equity swaps, and credit portfolio products such as CDOs.
Book Synopsis A Simple Unified Model for Pricing Derivative Securities With Equity, Interest-Rate, and Default Risk by : Sanjiv Ranjan Das
Download or read book A Simple Unified Model for Pricing Derivative Securities With Equity, Interest-Rate, and Default Risk written by Sanjiv Ranjan Das and published by . This book was released on 2011 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a model for pricing derivative and hybrid securities whose value may depend on different sources of risk, namely, equity, interest-rate, and default risks. In addition to valuing such securities the framework is also useful for extracting probabilities of default (PD) functions from market data. Our model is not based on the stochastic process for the value of the firm [which is unobservable], but on the stochastic process for interest rates and the equity price, which are observable. The model comprises a risk-neutral setting in which the joint process of interest rates and equity are modeled together with the default conditions for security payoffs. The model is embedded on a recombining lattice which makes implementation of the pricing scheme feasible with polynomial complexity. We present a simple approach for calibration of the model to market observable data. The framework is shown to nest many familiar models as special cases. The model is extensible to handling correlated default risk and may be used to value distressed convertible bonds, debt-equity swaps, and credit portfolio products such as CDOs. We present several numerical and calibration examples to demonstrate the applicability and implementation of our approach.
Book Synopsis A Simple Model for Pricing Securities with Equity, Interest-Rate, and Default Risk by : Sanjiv Ranjan Das
Download or read book A Simple Model for Pricing Securities with Equity, Interest-Rate, and Default Risk written by Sanjiv Ranjan Das and published by . This book was released on 2009 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a model for pricing derivative and hybrid securities whose value may depend on different sources of risk, namely, equity, interest-rate, and default risks. In addition to valuing such securities the framework is also useful for extracting probabilities of default (PD) functions from market data. Our model is not based on the stochastic process for the value of the firm [which is unobservable], but on the stochastic process for interest rates and the equity price, which are observable. The model comprises a risk-neutral setting in which the joint process of interest rates and equity are modeled together with the default conditions for security payoffs. The model is embedded on a recombining lattice which makes implementation of the pricing scheme feasible with polynomial complexity. We present a simple approach to calibration of the model to market observable data. The framework is shown to nest many familiar models as special cases. The model is extensible to handling correlated default risk and may be used to value distressed convertible bonds, debt-equity swaps, and credit portfolio products such as CDOs. We present several numerical and calibration examples to demonstrate the applicability and implementation of our approach.
Book Synopsis Financial Derivatives Pricing by : Robert A. Jarrow
Download or read book Financial Derivatives Pricing written by Robert A. Jarrow and published by World Scientific. This book was released on 2008 with total page 609 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a collection of original papers by Robert Jarrow that contributed to significant advances in financial economics. Divided into three parts, Part I concerns option pricing theory and its foundations. The papers here deal with the famous Black-Scholes-Merton model, characterizations of the American put option, and the first applications of arbitrage pricing theory to market manipulation and liquidity risk.Part II relates to pricing derivatives under stochastic interest rates. Included is the paper introducing the famous Heath?Jarrow?Morton (HJM) model, together with papers on topics like the characterization of the difference between forward and futures prices, the forward price martingale measure, and applications of the HJM model to foreign currencies and commodities.Part III deals with the pricing of financial derivatives considering both stochastic interest rates and the likelihood of default. Papers cover the reduced form credit risk model, in particular the original Jarrow and Turnbull model, the Markov model for credit rating transitions, counterparty risk, and diversifiable default risk.
Book Synopsis Pricing Derivative Securities by : T. W. Epps
Download or read book Pricing Derivative Securities written by T. W. Epps and published by World Scientific. This book was released on 2007 with total page 644 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book presents techniques for valuing derivative securities at a level suitable for practitioners, students in doctoral programs in economics and finance, and those in masters-level programs in financial mathematics and computational finance. It provides the necessary mathematical tools from analysis, probability theory, the theory of stochastic processes, and stochastic calculus, making extensive use of examples. It also covers pricing theory, with emphasis on martingale methods. The chapters are organized around the assumptions made about the dynamics of underlying price processes. Readers begin with simple, discrete-time models that require little mathematical sophistication, proceed to the basic Black-Scholes theory, and then advance to continuous-time models with multiple risk sources. The second edition takes account of the major developments in the field since 2000. New topics include the use of simulation to price American-style derivatives, a new one-step approach to pricing options by inverting characteristic functions, and models that allow jumps in volatility and Markov-driven changes in regime. The new chapter on interest-rate derivatives includes extensive coverage of the LIBOR market model and an introduction to the modeling of credit risk. As a supplement to the text, the book contains an accompanying CD-ROM with user-friendly FORTRAN, C++, and VBA program components.
Book Synopsis Equity Derivatives and Hybrids by : Oliver Brockhaus
Download or read book Equity Derivatives and Hybrids written by Oliver Brockhaus and published by Springer. This book was released on 2016-04-29 with total page 304 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the development of the Black-Scholes model, research on equity derivatives has evolved rapidly to the point where it is now difficult to cut through the myriad of literature to find relevant material. Written by a quant with many years of experience in the field this book provides an up-to-date account of equity and equity-hybrid (equity-rates, equity-credit, equity-foreign exchange) derivatives modeling from a practitioner's perspective. The content reflects the requirements of practitioners in financial institutions: Quants will find a survey of state-of-the-art models and guidance on how to efficiently implement them with regards to market data representation, calibration, and sensitivity computation. Traders and structurers will learn about structured products, selection of the most appropriate models, as well as efficient hedging methods while risk managers will better understand market, credit, and model risk and find valuable information on advanced correlation concepts. Equity Derivatives and Hybrids provides exhaustive coverage of both market standard and new approaches, including: -Empirical properties of stock returns including autocorrelation and jumps -Dividend discount models -Non-Markovian and discrete-time volatility processes -Correlation skew modeling via copula as well as local and stochastic correlation factors -Hybrid modeling covering local and stochastic processes for interest rate, hazard rate, and volatility as well as closed form solutions -Credit, debt, and funding valuation adjustment (CVA, DVA, FVA) -Monte Carlo techniques for sensitivities including algorithmic differentiation, path recycling, as well as multilevel. Written in a highly accessible manner with examples, applications, research, and ideas throughout, this book provides a valuable resource for quantitative-minded practitioners and researchers.
Book Synopsis Essays on Pricing of Derivatives with Interest Rate, Credit, and Equity Risks by : Ravi Shanker Mateti
Download or read book Essays on Pricing of Derivatives with Interest Rate, Credit, and Equity Risks written by Ravi Shanker Mateti and published by . This book was released on 2007 with total page 127 pages. Available in PDF, EPUB and Kindle. Book excerpt: Then we show how the Das and Sundaram model can be extended to price convertible bonds which have a peculiar conversion feature; these bonds are convertible not into the stock of the bond issuer, but into the stock of a different company. We also test the empirical performance of this extended model.
Book Synopsis A Factor Model Approach to Derivative Pricing by : James A. Primbs
Download or read book A Factor Model Approach to Derivative Pricing written by James A. Primbs and published by Chapman & Hall/CRC. This book was released on 2016-12-08 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Written in a highly accessible style, A Factor Model Approach to Derivative Pricing lays a clear and structured foundation for the pricing of derivative securities based upon simple factor model related absence of arbitrage ideas. This unique and unifying approach provides for a broad treatment of topics and models, including equity, interest-rate, and credit derivatives, as well as hedging and tree-based computational methods, but without reliance on the heavy prerequisites that often accompany such topics. Key features A single fundamental absence of arbitrage relationship based on factor models is used to motivate all the results in the book A structured three-step procedure is used to guide the derivation of absence of arbitrage equations and illuminate core underlying concepts Brownian motion and Poisson process driven models are treated together, allowing for a broad and cohesive presentation of topics The final chapter provides a new approach to risk neutral pricing that introduces the topic as a seamless and natural extension of the factor model approach Whether being used as text for an intermediate level course in derivatives, or by researchers and practitioners who are seeking a better understanding of the fundamental ideas that underlie derivative pricing, readers will appreciate the book's ability to unify many disparate topics and models under a single conceptual theme. James A Primbs is an Associate Professor of Finance at the Mihaylo College of Business and Economics at California State University, Fullerton.
Book Synopsis Mathematical Models of Financial Derivatives by : Yue-Kuen Kwok
Download or read book Mathematical Models of Financial Derivatives written by Yue-Kuen Kwok and published by Springer. This book was released on 2009-08-29 with total page 530 pages. Available in PDF, EPUB and Kindle. Book excerpt: This second edition, now featuring new material, focuses on the valuation principles that are common to most derivative securities. A wide range of financial derivatives commonly traded in the equity and fixed income markets are analysed, emphasising aspects of pricing, hedging and practical usage. This second edition features additional emphasis on the discussion of Ito calculus and Girsanovs Theorem, and the risk-neutral measure and equivalent martingale pricing approach. A new chapter on credit risk models and pricing of credit derivatives has been added. Up-to-date research results are provided by many useful exercises.
Book Synopsis Pricing Derivatives by : Ambar Sengupta
Download or read book Pricing Derivatives written by Ambar Sengupta and published by . This book was released on 2005 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: Irwin Library of Investment and Finance Pricing Derivatives provides investors with a clear understanding of derivative pricing models by first focusing on the underlying mathematics and financial concepts upon which the models were originally built. Trading consultant Professor Ambar Sengupta uses short, to-the-point chapters to examine the relation between price and probability as well as pricing structures of all major derivative instruments. Other topics covered include foundations of stochastic models of pricing, along with methods for establishing optimal prices in terms of the max-min principles that underlie game theory.
Book Synopsis Illiquid Derivative Pricing and Equity Valuation Under Interest Rate Risk by : Kang Zhuang
Download or read book Illiquid Derivative Pricing and Equity Valuation Under Interest Rate Risk written by Kang Zhuang and published by . This book was released on 2010 with total page 96 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on the Merton's problem and the concept of indifference pricing methodology, the author develops a pair of uncoupled partial differential equations to find the fair price of a single illiquid financial security. The equations are developed by two different methods, and the results are consistent. Furthermore, a vector indifference pricing framework is conjectured for multiple securities valuation. The pricing method is applied on financial contract that could not be traded during valuation period and the liquidity premium is revealed. Especially, this method could be applied on private equity valuation problem. Another pricing equation using the concept of consistent pricing is also developed in this paper. Moreover by applying variable transformation technique on the Basic Equity Model, an integral from solution is found on the public equity valuation problem under interest rate risk.
Book Synopsis Derivative Pricing with Liquidity Risk by : Dion Bongaerts
Download or read book Derivative Pricing with Liquidity Risk written by Dion Bongaerts and published by . This book was released on 2010 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive an equilibrium asset pricing model incorporating liquidity risk, derivative assets, and short-selling due to hedging of non-traded risk. We show that, both for positive-net-supply assets and derivatives, the sign of liquidity effects depends on investor heterogeneity in non-traded risk exposure, risk aversion, horizon and wealth. We also show that liquidity risk affects derivatives in a different way than positive-net-supply assets. We estimate this model for the credit default swap market using GMM. We find strong evidence for an expected liquidity premium earned by the credit protection seller. The effect of liquidity risk is significant but economically small.
Book Synopsis Pricing Derivative Securities (Second Edition). by : Thomas W. Epps
Download or read book Pricing Derivative Securities (Second Edition). written by Thomas W. Epps and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book presents techniques for valuing derivative securities at a level suitable for practitioners, students in doctoral programs in economics and finance, and those in masters-level programs in financial mathematics and computational finance. It provides the necessary mathematical tools from analysis, probability theory, the theory of stochastic processes, and stochastic calculus, making extensive use of examples. It also covers pricing theory, with emphasis on martingale methods. The chapters are organized around the assumptions made about the dynamics of underlying price processes. Readers begin with simple, discrete-time models that require little mathematical sophistication, proceed to the basic Black-Scholes theory, and then advance to continuous-time models with multiple risk sources. The second edition takes account of the major developments in the field since 2000. New topics include the use of simulation to price American-style derivatives, a new one-step approach to pricing options by inverting characteristic functions, and models that allow jumps in volatility and Markov-driven changes in regime. The new chapter on interest-rate derivatives includes extensive coverage of the LIBOR market model and an introduction to the modeling of credit risk. As a supplement to the text, the book contains an accompanying CD-ROM with user-friendly FORTRAN, C, and VBA program components.
Book Synopsis International Convergence of Capital Measurement and Capital Standards by :
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Liquidity Risk Measurement and Management by : Leonard Matz
Download or read book Liquidity Risk Measurement and Management written by Leonard Matz and published by John Wiley & Sons. This book was released on 2006-11-10 with total page 413 pages. Available in PDF, EPUB and Kindle. Book excerpt: Major events such as the Asian crisis in 1997, the Russian default on short-term debt in 1998, the downfall of the hedge fund long-term capital management in 1998 and the disruption in payment systems following the World Trade Center attack in 2001, all resulted in increased management’s attention to liquidity risk. Banks have realized that adequate systems and processes for identifying, measuring, monitoring and controlling liquidity risks help them to maintain a strong liquidity position, which in turn will increase the confidence of investors and rating agencies as well as improve funding costs and availability. Liquidity Risk Measurement and Management: A Practitioner’s Guide to Global Best Practices provides the best practices in tools and techniques for bank liquidity risk measurement and management. Experienced bankers and highly regarded liquidity risk experts share their insights and practical experiences in this book.
Book Synopsis The Risk of Economic Crisis by : Martin Feldstein
Download or read book The Risk of Economic Crisis written by Martin Feldstein and published by University of Chicago Press. This book was released on 1991-08-13 with total page 212 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on a special National Bureau of Economic Research conference held in Oct. 1989. Includes bibliographical references and indexes.
Book Synopsis Introduction to Derivative Securities, Financial Markets, and Risk Management, an (Third Edition) by : Robert A Jarrow
Download or read book Introduction to Derivative Securities, Financial Markets, and Risk Management, an (Third Edition) written by Robert A Jarrow and published by . This book was released on 2024-07-06 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The third edition updates the text in two significant ways. First, it updates the presentation to reflect changes that have occurred in financial markets since the publication of the 2nd edition. One such change is with respect to the over-the-counter interest rate derivatives markets and the abolishment of LIBOR as a reference rate. Second, it updates the theory to reflect new research related to asset price bubbles and the valuation of options. Asset price bubbles are a reality in financial markets and their impact on derivative pricing is essential to understand. This is the only introductory textbook that contains these insights on asset price bubbles and options.
