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The Performance Of Multi Factor Term Structure Models For Pricing And Hedging Caps And Swaptions
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Book Synopsis Modeling the Term Structure of Interest Rates by : Rajna Gibson
Download or read book Modeling the Term Structure of Interest Rates written by Rajna Gibson and published by Now Publishers Inc. This book was released on 2010 with total page 171 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modeling the Term Structure of Interest Rates provides a comprehensive review of the continuous-time modeling techniques of the term structure applicable to value and hedge default-free bonds and other interest rate derivatives.
Book Synopsis Term-Structure Models by : Damir Filipovic
Download or read book Term-Structure Models written by Damir Filipovic and published by Springer Science & Business Media. This book was released on 2009-07-28 with total page 259 pages. Available in PDF, EPUB and Kindle. Book excerpt: Changing interest rates constitute one of the major risk sources for banks, insurance companies, and other financial institutions. Modeling the term-structure movements of interest rates is a challenging task. This volume gives an introduction to the mathematics of term-structure models in continuous time. It includes practical aspects for fixed-income markets such as day-count conventions, duration of coupon-paying bonds and yield curve construction; arbitrage theory; short-rate models; the Heath-Jarrow-Morton methodology; consistent term-structure parametrizations; affine diffusion processes and option pricing with Fourier transform; LIBOR market models; and credit risk. The focus is on a mathematically straightforward but rigorous development of the theory. Students, researchers and practitioners will find this volume very useful. Each chapter ends with a set of exercises, that provides source for homework and exam questions. Readers are expected to be familiar with elementary Itô calculus, basic probability theory, and real and complex analysis.
Book Synopsis Empirical Dynamic Asset Pricing by : Kenneth J. Singleton
Download or read book Empirical Dynamic Asset Pricing written by Kenneth J. Singleton and published by Princeton University Press. This book was released on 2009-12-13 with total page 497 pages. Available in PDF, EPUB and Kindle. Book excerpt: Written by one of the leading experts in the field, this book focuses on the interplay between model specification, data collection, and econometric testing of dynamic asset pricing models. The first several chapters provide an in-depth treatment of the econometric methods used in analyzing financial time-series models. The remainder explores the goodness-of-fit of preference-based and no-arbitrage models of equity returns and the term structure of interest rates; equity and fixed-income derivatives prices; and the prices of defaultable securities. Singleton addresses the restrictions on the joint distributions of asset returns and other economic variables implied by dynamic asset pricing models, as well as the interplay between model formulation and the choice of econometric estimation strategy. For each pricing problem, he provides a comprehensive overview of the empirical evidence on goodness-of-fit, with tables and graphs that facilitate critical assessment of the current state of the relevant literatures. As an added feature, Singleton includes throughout the book interesting tidbits of new research. These range from empirical results (not reported elsewhere, or updated from Singleton's previous papers) to new observations about model specification and new econometric methods for testing models. Clear and comprehensive, the book will appeal to researchers at financial institutions as well as advanced students of economics and finance, mathematics, and science.
Download or read book The Journal of Derivatives written by and published by . This book was released on 2007 with total page 788 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Interest Rates and Coupon Bonds in Quantum Finance by : Belal E. Baaquie
Download or read book Interest Rates and Coupon Bonds in Quantum Finance written by Belal E. Baaquie and published by Cambridge University Press. This book was released on 2009-09-17 with total page 509 pages. Available in PDF, EPUB and Kindle. Book excerpt: The economic crisis of 2008 has shown that the capital markets need new theoretical and mathematical concepts to describe and price financial instruments. Focusing on interest rates and coupon bonds, this book does not employ stochastic calculus – the bedrock of the present day mathematical finance – for any of the derivations. Instead, it analyzes interest rates and coupon bonds using quantum finance. The Heath-Jarrow-Morton and the Libor Market Model are generalized by realizing the forward and Libor interest rates as an imperfectly correlated quantum field. Theoretical models have been calibrated and tested using bond and interest rates market data. Building on the principles formulated in the author's previous book (Quantum Finance, Cambridge University Press, 2004) this ground-breaking book brings together a diverse collection of theoretical and mathematical interest rate models. It will interest physicists and mathematicians researching in finance, and professionals working in the finance industry.
Book Synopsis Handbook of Computational Finance by : Jin-Chuan Duan
Download or read book Handbook of Computational Finance written by Jin-Chuan Duan and published by Springer Science & Business Media. This book was released on 2011-10-25 with total page 791 pages. Available in PDF, EPUB and Kindle. Book excerpt: Any financial asset that is openly traded has a market price. Except for extreme market conditions, market price may be more or less than a “fair” value. Fair value is likely to be some complicated function of the current intrinsic value of tangible or intangible assets underlying the claim and our assessment of the characteristics of the underlying assets with respect to the expected rate of growth, future dividends, volatility, and other relevant market factors. Some of these factors that affect the price can be measured at the time of a transaction with reasonably high accuracy. Most factors, however, relate to expectations about the future and to subjective issues, such as current management, corporate policies and market environment, that could affect the future financial performance of the underlying assets. Models are thus needed to describe the stochastic factors and environment, and their implementations inevitably require computational finance tools.
Download or read book ASTIN Bulletin written by and published by . This book was released on 2003 with total page 490 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Introduction to Mortgages and Mortgage Backed Securities by : Richard K. Green
Download or read book Introduction to Mortgages and Mortgage Backed Securities written by Richard K. Green and published by Academic Press. This book was released on 2013-11-21 with total page 249 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Introduction to Mortgages & Mortgage Backed Securities, author Richard Green combines current practices in real estate capital markets with financial theory so readers can make intelligent business decisions. After a behavioral economics chapter on the nature of real estate decisions, he explores mortgage products, processes, derivatives, and international practices. By focusing on debt, his book presents a different view of the mortgage market than is commonly available, and his primer on fixed-income tools and concepts ensures that readers understand the rich content he covers. Including commercial and residential real estate, this book explains how the markets work, why they collapsed in 2008, and what countries are doing to protect themselves from future bubbles. Green's expertise illuminates both the fundamentals of mortgage analysis and the international paradigms of products, models, and regulatory environments. - Written for buyers of real estate, not mortgage lenders - Balances theory with increasingly complex practices of commercial and residential mortgage lending - Emphasizes international practices, changes caused by the 2008-11 financial crisis, and the behavioral aspects of mortgage decision making
Book Synopsis Pricing Models for Bermudan-style Interest Rate Derivatives by : Raoul Pietersz
Download or read book Pricing Models for Bermudan-style Interest Rate Derivatives written by Raoul Pietersz and published by . This book was released on 2005 with total page 209 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Interest Rate Models - Theory and Practice by : Damiano Brigo
Download or read book Interest Rate Models - Theory and Practice written by Damiano Brigo and published by Springer Science & Business Media. This book was released on 2007-09-26 with total page 1016 pages. Available in PDF, EPUB and Kindle. Book excerpt: The 2nd edition of this successful book has several new features. The calibration discussion of the basic LIBOR market model has been enriched considerably, with an analysis of the impact of the swaptions interpolation technique and of the exogenous instantaneous correlation on the calibration outputs. A discussion of historical estimation of the instantaneous correlation matrix and of rank reduction has been added, and a LIBOR-model consistent swaption-volatility interpolation technique has been introduced. The old sections devoted to the smile issue in the LIBOR market model have been enlarged into a new chapter. New sections on local-volatility dynamics, and on stochastic volatility models have been added, with a thorough treatment of the recently developed uncertain-volatility approach. Examples of calibrations to real market data are now considered. The fast-growing interest for hybrid products has led to a new chapter. A special focus here is devoted to the pricing of inflation-linked derivatives. The three final new chapters of this second edition are devoted to credit. Since Credit Derivatives are increasingly fundamental, and since in the reduced-form modeling framework much of the technique involved is analogous to interest-rate modeling, Credit Derivatives -- mostly Credit Default Swaps (CDS), CDS Options and Constant Maturity CDS - are discussed, building on the basic short rate-models and market models introduced earlier for the default-free market. Counterparty risk in interest rate payoff valuation is also considered, motivated by the recent Basel II framework developments.
Book Synopsis Modern Pricing of Interest-Rate Derivatives by : Riccardo Rebonato
Download or read book Modern Pricing of Interest-Rate Derivatives written by Riccardo Rebonato and published by Princeton University Press. This book was released on 2012-01-16 with total page 486 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Optimization-Based Models for Measuring and Hedging Risk in Fixed Income Markets by : Johan Hagenbjörk
Download or read book Optimization-Based Models for Measuring and Hedging Risk in Fixed Income Markets written by Johan Hagenbjörk and published by Linköping University Electronic Press. This book was released on 2019-12-09 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global fixed income market is an enormous financial market whose value by far exceeds that of the public stock markets. The interbank market consists of interest rate derivatives, whose primary purpose is to manage interest rate risk. The credit market primarily consists of the bond market, which links investors to companies, institutions, and governments with borrowing needs. This dissertation takes an optimization perspective upon modeling both these areas of the fixed-income market. Legislators on the national markets require financial actors to value their financial assets in accordance with market prices. Thus, prices of many assets, which are not publicly traded, must be determined mathematically. The financial quantities needed for pricing are not directly observable but must be measured through solving inverse optimization problems. These measurements are based on the available market prices, which are observed with various degrees of measurement noise. For the interbank market, the relevant financial quantities consist of term structures of interest rates, which are curves displaying the market rates for different maturities. For the bond market, credit risk is an additional factor that can be modeled through default intensity curves and term structures of recovery rates in case of default. By formulating suitable optimization models, the different underlying financial quantities can be measured in accordance with observable market prices, while conditions for economic realism are imposed. Measuring and managing risk is closely connected to the measurement of the underlying financial quantities. Through a data-driven method, we can show that six systematic risk factors can be used to explain almost all variance in the interest rate curves. By modeling the dynamics of these six risk factors, possible outcomes can be simulated in the form of term structure scenarios. For short-term simulation horizons, this results in a representation of the portfolio value distribution that is consistent with the realized outcomes from historically observed term structures. This enables more accurate measurements of interest rate risk, where our proposed method exhibits both lower risk and lower pricing errors compared to traditional models. We propose a method for decomposing changes in portfolio values for an arbitrary portfolio into the risk factors that affect the value of each instrument. By demonstrating the method for the six systematic risk factors identified for the interbank market, we show that almost all changes in portfolio value and portfolio variance can be attributed to these risk factors. Additional risk factors and approximation errors are gathered into two terms, which can be studied to ensure the quality of the performance attribution, and possibly improve it. To eliminate undesired risk within trading books, banks use hedging. Traditional methods do not take transaction costs into account. We, therefore, propose a method for managing the risks in the interbank market through a stochastic optimization model that considers transaction costs. This method is based on a scenario approximation of the optimization problem where the six systematic risk factors are simulated, and the portfolio variance is weighted against the transaction costs. This results in a method that is preferred over the traditional methods for all risk-averse investors. For the credit market, we use data from the bond market in combination with the interbank market to make accurate measurements of the financial quantities. We address the notoriously difficult problem of separating default risk from recovery risk. In addition to the previous identified six systematic risk factors for risk-free interests, we identify four risk factors that explain almost all variance in default intensities, while a single risk factor seems sufficient to model the recovery risk. Overall, this is a higher number of risk factors than is usually found in the literature. Through a simple model, we can measure the variance in bond prices in terms of these systematic risk factors, and through performance attribution, we relate these values to the empirically realized variances from the quoted bond prices. De globala ränte- och kreditmarknaderna är enorma finansiella marknader vars sammanlagda värden vida överstiger de publika aktiemarknadernas. Räntemarknaden består av räntederivat vars främsta användningsområde är hantering av ränterisker. Kreditmarknaden utgörs i första hand av obligationsmarknaden som syftar till att förmedla pengar från investerare till företag, institutioner och stater med upplåningsbehov. Denna avhandling fokuserar på att utifrån ett optimeringsperspektiv modellera både ränte- och obligationsmarknaden. Lagstiftarna på de nationella marknaderna kräver att de finansiella aktörerna värderar sina finansiella tillgångar i enlighet med marknadspriser. Därmed måste priserna på många instrument, som inte handlas publikt, beräknas matematiskt. De finansiella storheter som krävs för denna prissättning är inte direkt observerbara, utan måste mätas genom att lösa inversa optimeringsproblem. Dessa mätningar görs utifrån tillgängliga marknadspriser, som observeras med varierande grad av mätbrus. För räntemarknaden utgörs de relevanta finansiella storheterna av räntekurvor som åskådliggör marknadsräntorna för olika löptider. För obligationsmarknaden utgör kreditrisken en ytterligare faktor som modelleras via fallissemangsintensitetskurvor och kurvor kopplade till förväntat återvunnet kapital vid eventuellt fallissemang. Genom att formulera lämpliga optimeringsmodeller kan de olika underliggande finansiella storheterna mätas i enlighet med observerbara marknadspriser samtidigt som ekonomisk realism eftersträvas. Mätning och hantering av risker är nära kopplat till mätningen av de underliggande finansiella storheterna. Genom en datadriven metod kan vi visa att sex systematiska riskfaktorer kan användas för att förklara nästan all varians i räntekurvorna. Genom att modellera dynamiken i dessa sex riskfaktorer kan tänkbara utfall för räntekurvor simuleras. För kortsiktiga simuleringshorisonter resulterar detta i en representation av fördelningen av portföljvärden som väl överensstämmer med de realiserade utfallen från historiskt observerade räntekurvor. Detta möjliggör noggrannare mätningar av ränterisk där vår föreslagna metod uppvisar såväl lägre risk som mindre prissättningsfel jämfört med traditionella modeller. Vi föreslår en metod för att dekomponera portföljutvecklingen för en godtycklig portfölj till de riskfaktorer som påverkar värdet för respektive instrument. Genom att demonstrera metoden för de sex systematiska riskfaktorerna som identifierats för räntemarknaden visar vi att nästan all portföljutveckling och portföljvarians kan härledas till dessa riskfaktorer. Övriga riskfaktorer och approximationsfel samlas i två termer, vilka kan användas för att säkerställa och eventuellt förbättra kvaliteten i prestationshärledningen. För att eliminera oönskad risk i sina tradingböcker använder banker sig av hedging. Traditionella metoder tar ingen hänsyn till transaktionskostnader. Vi föreslår därför en metod för att hantera riskerna på räntemarknaden genom en stokastisk optimeringsmodell som också tar hänsyn till transaktionskostnader. Denna metod bygger på en scenarioapproximation av optimeringsproblemet där de sex systematiska riskfaktorerna simuleras och portföljvariansen vägs mot transaktionskostnaderna. Detta resulterar i en metod som, för alla riskaverta investerare, är att föredra framför de traditionella metoderna. På kreditmarknaden använder vi data från obligationsmarknaden i kombination räntemarknaden för att göra noggranna mätningar av de finansiella storheterna. Vi angriper det erkänt svåra problemet att separera fallissemangsrisk från återvinningsrisk. Förutom de tidigare sex systematiska riskfaktorerna för riskfri ränta, identifierar vi fyra riskfaktorer som förklarar nästan all varians i fallissemangsintensiteter, medan en enda riskfaktor tycks räcka för att modellera återvinningsrisken. Sammanlagt är detta ett större antal riskfaktorer än vad som brukar användas i litteraturen. Via en enkel modell kan vi mäta variansen i obligationspriser i termer av dessa systematiska riskfaktorer och genom prestationshärledningen relatera dessa värden till de empiriskt realiserade varianserna från kvoterade obligationspriser.
Book Synopsis The Oxford Guide to Financial Modeling by : Thomas S. Y. Ho
Download or read book The Oxford Guide to Financial Modeling written by Thomas S. Y. Ho and published by Oxford University Press. This book was released on 2004-01-15 with total page 762 pages. Available in PDF, EPUB and Kindle. Book excerpt: The essential premise of this book is that theory and practice are equally important in describing financial modeling. In it the authors try to strike a balance in their discussions between theories that provide foundations for financial models and the institutional details that provide the context for applications of the models. The book presents the financial models of stock and bond options, exotic options, investment grade and high-yield bonds, convertible bonds, mortgage-backed securities, liabilities of financial institutions--the business model and the corporate model. It also describes the applications of the models to corporate finance. Furthermore, it relates the models to financial statements, risk management for an enterprise, and asset/liability management with illiquid instruments. The financial models are progressively presented from option pricing in the securities markets to firm valuation in corporate finance, following a format to emphasize the three aspects of a model: the set of assumptions, the model specification, and the model applications. Generally, financial modeling books segment the world of finance as "investments," "financial institutions," "corporate finance," and "securities analysis," and in so doing they rarely emphasize the relationships between the subjects. This unique book successfully ties the thought processes and applications of the financial models together and describes them as one process that provides business solutions. Created as a companion website to the book readers can visit www.thomasho.com to gain deeper understanding of the book's financial models. Interested readers can build and test the models described in the book using Excel, and they can submit their models to the site. Readers can also use the site's forum to discuss the models and can browse server based models to gain insights into the applications of the models. For those using the book in meetings or class settings the site provides Power Point descriptions of the chapters. Students can use available question banks on the chapters for studying.
Book Synopsis Towards a Better Understanding of Stocks, Interest Rate Derivatives and Real Estate Investment Trusts by : Bing Han
Download or read book Towards a Better Understanding of Stocks, Interest Rate Derivatives and Real Estate Investment Trusts written by Bing Han and published by . This book was released on 2002 with total page 444 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Handbook of Quantitative Finance and Risk Management by : Cheng-Few Lee
Download or read book Handbook of Quantitative Finance and Risk Management written by Cheng-Few Lee and published by Springer Science & Business Media. This book was released on 2010-06-14 with total page 1700 pages. Available in PDF, EPUB and Kindle. Book excerpt: Quantitative finance is a combination of economics, accounting, statistics, econometrics, mathematics, stochastic process, and computer science and technology. Increasingly, the tools of financial analysis are being applied to assess, monitor, and mitigate risk, especially in the context of globalization, market volatility, and economic crisis. This two-volume handbook, comprised of over 100 chapters, is the most comprehensive resource in the field to date, integrating the most current theory, methodology, policy, and practical applications. Showcasing contributions from an international array of experts, the Handbook of Quantitative Finance and Risk Management is unparalleled in the breadth and depth of its coverage. Volume 1 presents an overview of quantitative finance and risk management research, covering the essential theories, policies, and empirical methodologies used in the field. Chapters provide in-depth discussion of portfolio theory and investment analysis. Volume 2 covers options and option pricing theory and risk management. Volume 3 presents a wide variety of models and analytical tools. Throughout, the handbook offers illustrative case examples, worked equations, and extensive references; additional features include chapter abstracts, keywords, and author and subject indices. From "arbitrage" to "yield spreads," the Handbook of Quantitative Finance and Risk Management will serve as an essential resource for academics, educators, students, policymakers, and practitioners.
Book Synopsis Fixed Income Securities by : Pietro Veronesi
Download or read book Fixed Income Securities written by Pietro Veronesi and published by John Wiley & Sons. This book was released on 2010-01-12 with total page 845 pages. Available in PDF, EPUB and Kindle. Book excerpt: The deep understanding of the forces that affect the valuation, risk and return of fixed income securities and their derivatives has never been so important. As the world of fixed income securities becomes more complex, anybody who studies fixed income securities must be exposed more directly to this complexity. This book provides a thorough discussion of these complex securities, the forces affecting their prices, their risks, and of the appropriate risk management practices. Fixed Income Securities, however, provides a methodology, and not a shopping list. It provides instead examples and methodologies that can be applied quite universally, once the basic concepts have been understood.
Book Synopsis Rethinking Valuation and Pricing Models by : Carsten Wehn
Download or read book Rethinking Valuation and Pricing Models written by Carsten Wehn and published by Academic Press. This book was released on 2012-11-08 with total page 658 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is widely acknowledged that many financial modelling techniques failed during the financial crisis, and in our post-crisis environment many techniques are being reconsidered. This single volume provides a guide to lessons learned for practitioners and a reference for academics. Including reviews of traditional approaches, real examples, and case studies, contributors consider portfolio theory; methods for valuing equities and equity derivatives, interest rate derivatives, and hybrid products; and techniques for calculating risks and implementing investment strategies. Describing new approaches without losing sight of their classical antecedents, this collection of original articles presents a timely perspective on our post-crisis paradigm. Highlights pre-crisis best classical practices, identifies post-crisis key issues, and examines emerging approaches to solving those issues Singles out key factors one must consider when valuing or calculating risks in the post-crisis environment Presents material in a homogenous, practical, clear, and not overly technical manner
