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Pricing Currency Derivatives When The Foreign Exchange Rate And The Interest Rates Follow Jump Diffusion Processes
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Book Synopsis Pricing Currency Derivatives when the Foreign Exchange Rate and the Interest Rates Follow Jump-diffusion Processes by : Vivek Ranjan
Download or read book Pricing Currency Derivatives when the Foreign Exchange Rate and the Interest Rates Follow Jump-diffusion Processes written by Vivek Ranjan and published by . This book was released on 2003 with total page 146 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Jumps, Martingales, and Foreign Exchange Futures Prices by : Zuliu Hu
Download or read book Jumps, Martingales, and Foreign Exchange Futures Prices written by Zuliu Hu and published by International Monetary Fund. This book was released on 1996-02-01 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: A common specification about the behavior of foreign exchange spot and futures prices is that they follow continuous diffusion processes. The empirical regularities uncovered from daily and weekly currency futures data, however, cast doubts on the validity of this model. First, contrary to the suggestions in the literature, changes in foreign currency futures prices are serially correlated; variance ratio tests and other related tests overwhelmingly reject Samuelson’s martingale hypothesis. Second, foreign exchange futures prices do not appear to have continuous sample path; the evidence suggests the presence of a jump component, which may lead to pricing bias when applying the standard Black-Scholes option pricing formula to foreign exchange markets.
Book Synopsis Currency Derivatives by : David F. DeRosa
Download or read book Currency Derivatives written by David F. DeRosa and published by John Wiley & Sons. This book was released on 1998-09-07 with total page 414 pages. Available in PDF, EPUB and Kindle. Book excerpt: Mit über einer Billion US Dollar Umsatz stellt der Devisenhandel weltweit den größten Markt dar. In diesem Markt sind Währungsderivate zu einem bevorzugten Handelsinstrument geworden, das von Großbanken, Brokerhäusern, Hedge Funds (spekulativ ausgerichteter Fonds, der mit Hilfe von Derivaten seine Gewinne zu optimieren versucht) und Handelsberatern eingesetzt wird. Zwar sind diese Instrumente heute komplexer denn je, aber sie sind ein unverzichtbares Mittel des Risikomanagements im Devisenhandel. Herausgegeben von führenden Devisenhändlern und Analysten, ist dieses Buch Basislektüre für jeden, der sich in diesem Bereich bewegt. Eine Sammlung der 20 besten und meist zitierten Beiträge zu Währungsderivaten, Preistheorie und Anwendungen von Hedging-Methoden (10/98)
Book Synopsis Pricing Currency Options Under Stochastic Interest Rates and Jump-diffusion Processes by : Ako Doffou
Download or read book Pricing Currency Options Under Stochastic Interest Rates and Jump-diffusion Processes written by Ako Doffou and published by . This book was released on 1998 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Testing a Three - State Model in Currency Derivative Markets by : Ako Doffou
Download or read book Testing a Three - State Model in Currency Derivative Markets written by Ako Doffou and published by . This book was released on 2008 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the ability of the jump diffusion models to explain systematic deviations in implicit distributions from the benchmark assumption of lognormality. Jumps that occur in the spot exchange rate due to supply and demand fluctuations in the currency market impose distributions for spot and futures prices that have degrees of skewness and kurtosis different from those of the lognormal distribution. Merton (1976)model allows for diversifiable jump risk. Bates' (1991, 1996) model allows the jump exchange risk to be systematic and derives the correct functional form of the market price of risk. Recent transactions data on futures and futures options are used to test the jump diffusion stochastic interest rates model developed by Doffou and Hilliard (2001a), as well as Bates' (1991, 1996)and Black's (1976) models to price out - of - sample options in a British pound, German mark,and Japanese yen futures market. The test results show that the jump diffusion stochastic interest rates model performs better than Bates' model which in turn performs better than Black's model.
Book Synopsis Pricing Interest-Rate Derivatives by : Markus Bouziane
Download or read book Pricing Interest-Rate Derivatives written by Markus Bouziane and published by Springer. This book was released on 2009-09-03 with total page 193 pages. Available in PDF, EPUB and Kindle. Book excerpt: The author derives an efficient and accurate pricing tool for interest-rate derivatives within a Fourier-transform based pricing approach, which is generally applicable to exponential-affine jump-diffusion models.
Book Synopsis Pricing Interest Rate Derivatives with Arbitrary Skewness and Kurtosis by : Sanjiv R. Das
Download or read book Pricing Interest Rate Derivatives with Arbitrary Skewness and Kurtosis written by Sanjiv R. Das and published by . This book was released on 1995 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Term structure models employing jump-diffusion processes may be used to accommodate the observed skewness and kurtosis of interest rates. This paper extends the discrete-time, pure-diffusion version of the Heath-Jarrow-Morton model to the pricing of American bond options when the underlying term structure of interest rates follows a jump-diffusion process. The jump-diffusion process is specified using a hexanomial tree (six nodes emanating from each node), and the tree is shown to be recombining. This feature of the tree ensures path-independence. The scheme is parsimonious, accurate and convergent. A fairly general class of time-dependent volatilities preserving path independence and providing mean revision is shown to be attainable even under this enhanced jump-diffusion framework.
Book Synopsis Pricing Interest Rate Derivatives with Arbitrary Skewness and Kurtosis by : Sanjiv R. Das
Download or read book Pricing Interest Rate Derivatives with Arbitrary Skewness and Kurtosis written by Sanjiv R. Das and published by . This book was released on 1995 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Term structure models employing jump-diffusion processes may be used to accommodate the observed skewness and kurtosis of interest rates. This paper extends the discrete-time, pure-diffusion version of the Heath-Jarrow-Morton model to the pricing of American bond options when the underlying term structure of interest rates follows a jump-diffusion process. The jump-diffusion process is specified using a hexanomial tree (six nodes emanating from each node), and the tree is shown to be recombining. This feature of the tree ensures path-independence. The scheme is parsimonious, accurate and convergent. A fairly general class of time-dependent volatilities preserving path independence and providing mean revision is shown to be attainable even under this enhanced jump-diffusion framework.
Book Synopsis Currency Derivative and International Term Structure Pricing in a Stochastic Interest Rate, Stochastic Volatility and Stochastic Jump Intensity World by : Shijun Liu
Download or read book Currency Derivative and International Term Structure Pricing in a Stochastic Interest Rate, Stochastic Volatility and Stochastic Jump Intensity World written by Shijun Liu and published by . This book was released on 2007 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: We first derive closed form solutions for currency options, currency futures, future options and the term structures of interest rates in a diffusion-jump model of stochastic interest rate, stochastic volatility and time varying jump intensity in currency price. We demonstrate that the introduction of constant jump intensity in the nominal stochastic discount factor shifts the whole term structure of interest rates vertically but has no influence on its shape. However, when the jump intensity is endogenous (time varying) the shape of the term structure is influenced through the factor sensitivity of interest rates. We also document considerable improvement in currency option pricing precision over alternative models if the true model is diffusion-jump with endogenous intensity in a simulation experiment. We conclude that allowing for multidimensional interaction is of significant qualitative and quantitative importance for the pricing of currency options and for understanding the shape of the term structure.
Book Synopsis Currency Trading Markets and Pricing Their Derivatives by : Maksym Tertychnyi
Download or read book Currency Trading Markets and Pricing Their Derivatives written by Maksym Tertychnyi and published by LAP Lambert Academic Publishing. This book was released on 2014-05-16 with total page 128 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a Levy process we generalize formulas in Bo et. al. (2010) to the Esscher transform parameters for the log-normal distribution which ensures the martingale condition holds for the discounted foreign exchange rate. We also derive similar results, but in the case when the dynamics of the FX rate is driven by a general Merton jump-diffusion process. Using these values of the parameters we find a risk-neural measure and provide new formulas for the distribution of jumps, the mean jump size, and the Poisson process intensity with respect to this measure. The formulas for a European call foreign exchange option are also derived. We apply these formulas to the case of the log-double exponential and exponential distribution of jumps. We provide numerical simulations for the European call foreign exchange option prices with different parameters.
Book Synopsis Derivatives Effect on Monetary Policy Transmission by : Coenraad Vrolijk
Download or read book Derivatives Effect on Monetary Policy Transmission written by Coenraad Vrolijk and published by International Monetary Fund. This book was released on 1997-09 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines changes in the monetary policy transmission mechanism in the presence of derivatives markets. The effect of adding derivatives markets is analyzed independently for each of the main channels of monetary policy transmission: interest rates, credit, and exchange rates. Theoretically, derivatives trading speeds up transmission to financial asset prices, but changes in the transmission to the real economy are ambiguous. Using the structural vector autoregression methodology, an empirical study of the United Kingdom is used to assess the impulse responses of output and inflation, controlling for the size of the U.K. derivative markets. No definitive empirical support for a change in the transmission process is found.
Book Synopsis Pricing European and American Derivatives Under a Jump-Diffusion Process by : Jimmy E. Hilliard
Download or read book Pricing European and American Derivatives Under a Jump-Diffusion Process written by Jimmy E. Hilliard and published by . This book was released on 2003 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a straightforward procedure to price derivatives by a bivariate tree when the underlying process is a jump-diffusion. Probabilities and jump sizes are derived by matching higher order moments or cumulants. Comparisons with other published results are given along with convergence proofs and estimates of the order of convergence. A long term investment project is used to demonstrate the impact of jumps on imbedded options.
Book Synopsis Financial Derivatives by : Rob Quail
Download or read book Financial Derivatives written by Rob Quail and published by John Wiley & Sons. This book was released on 2009-10-15 with total page 627 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essential insights on the various aspects of financial derivatives If you want to understand derivatives without getting bogged down by the mathematics surrounding their pricing and valuation, Financial Derivatives is the book for you. Through in-depth insights gleaned from years of financial experience, Robert Kolb and James Overdahl clearly explain what derivatives are and how you can prudently use them within the context of your underlying business activities. Financial Derivatives introduces you to the wide range of markets for financial derivatives. This invaluable guide offers a broad overview of the different types of derivatives-futures, options, swaps, and structured products-while focusing on the principles that determine market prices. This comprehensive resource also provides a thorough introduction to financial derivatives and their importance to risk management in a corporate setting. Filled with helpful tables and charts, Financial Derivatives offers a wealth of knowledge on futures, options, swaps, financial engineering, and structured products. Discusses what derivatives are and how you can prudently implement them within the context of your underlying business activities Provides thorough coverage of financial derivatives and their role in risk management Explores financial derivatives without getting bogged down by the mathematics surrounding their pricing and valuation This informative guide will help you unlock the incredible potential of financial derivatives.
Book Synopsis Discrete-time Bond and Option Pricing for Jump-diffusion Processes by : Sanjiv R. Das
Download or read book Discrete-time Bond and Option Pricing for Jump-diffusion Processes written by Sanjiv R. Das and published by . This book was released on 1994 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a methodology for pricing American type interest rate contingent claims for jump-diffusion processes. The method enhances the standard finite-differencing approach to deal with partial differential-difference equations derived in a jump-diffusion world. The numerical stability and convergence of the scheme is also proved. Numerical illustrations compare jump-diffusion and pure-diffusion models. Whereas the existence of jumps affects call options on bonds very much like those on stocks, this is not the case for puts which are affected by the asymmetric convexity of the bond pricing function. Early exercise behavior is also analyzed.
Book Synopsis Discrete-time Asset Pricing Models in Applied Stochastic Finance by : P. C. G. Vassiliou
Download or read book Discrete-time Asset Pricing Models in Applied Stochastic Finance written by P. C. G. Vassiliou and published by John Wiley & Sons. This book was released on 2013-03-01 with total page 296 pages. Available in PDF, EPUB and Kindle. Book excerpt: Stochastic finance and financial engineering have been rapidly expanding fields of science over the past four decades, mainly due to the success of sophisticated quantitative methodologies in helping professionals manage financial risks. In recent years, we have witnessed a tremendous acceleration in research efforts aimed at better comprehending, modeling and hedging this kind of risk. These two volumes aim to provide a foundation course on applied stochastic finance. They are designed for three groups of readers: firstly, students of various backgrounds seeking a core knowledge on the subject of stochastic finance; secondly financial analysts and practitioners in the investment, banking and insurance industries; and finally other professionals who are interested in learning advanced mathematical and stochastic methods, which are basic knowledge in many areas, through finance. Volume 1 starts with the introduction of the basic financial instruments and the fundamental principles of financial modeling and arbitrage valuation of derivatives. Next, we use the discrete-time binomial model to introduce all relevant concepts. The mathematical simplicity of the binomial model also provides us with the opportunity to introduce and discuss in depth concepts such as conditional expectations and martingales in discrete time. However, we do not expand beyond the needs of the stochastic finance framework. Numerous examples, each highlighted and isolated from the text for easy reference and identification, are included. The book concludes with the use of the binomial model to introduce interest rate models and the use of the Markov chain model to introduce credit risk. This volume is designed in such a way that, among other uses, makes it useful as an undergraduate course.
Book Synopsis Emerging Financial Derivatives by : Jerome Yen
Download or read book Emerging Financial Derivatives written by Jerome Yen and published by Routledge. This book was released on 2014-11-27 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: Exotic options and structured products are two of the most popular financial products over the past ten years and will soon become very important to the emerging markets, especially China. This book first discusses the products' recent development in the world and provides comprehensive overview of the major products. The book also discusses the risks of issuing and buying such products as well as the techniques to price them and to assess the risks. Volatility is the most important factor in determining the return and risk. Therefore, significant part of the book's content discusses how we can measure the volatility by using local and stochastic volatility models — Heston Model and Dupire Model, the volatility surface, the term structure of volatility, variance swaps, and breakeven volatility. The book introduces a set of dimensions which can be used to describe structured products to help readers to classify them. It also describes the more commonly traded exotic options with details. The book discusses key features of each exotic option which can be used to develop structured products and covers their pricing models and when to issue such products that contain such exotic options. This book contains several case studies about how to use the models or techniques to price and hedge risks. These case analyses are illuminating.
Book Synopsis Journal of International Money and Finance by :
Download or read book Journal of International Money and Finance written by and published by . This book was released on 1996 with total page 1050 pages. Available in PDF, EPUB and Kindle. Book excerpt:
