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Saturday, July 18, 2020 | History

4 edition of A numerical study of one-factor interest rate models found in the catalog.

A numerical study of one-factor interest rate models

Zhong Ge

A numerical study of one-factor interest rate models

by Zhong Ge

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  • 2 Currently reading

Published by National Library of Canada in Ottawa .
Written in English


Edition Notes

Thesis (M.Sc.) -- University of Toronto, 1998.

SeriesCanadian theses = -- Thèses canadiennes
The Physical Object
FormatMicroform
Pagination2 microfiches : negative. --
ID Numbers
Open LibraryOL18727752M
ISBN 100612340384
OCLC/WorldCa46577951

Interest rate derivatives are much more difficult to value than stock options. This paper discusses the basic approaches to price interest rate derivatives and presents the first comprehensive study of different models which can be used to manage the risk of interest rate derivatives. One and two factor models of the Heath / Jarrow. The three volumes of Interest Rate Modeling are aimed primarily at practitioners working in the area of interest rate derivatives, but much of the material is quite general and, we believe, will also hold significant appeal to researchers working in other asset classes. Students and academics interested in financial engineering and applied work /5(9).

Book Description Atlantic Financial Press, United States, Hardback. Condition: New. Language: English. Brand new Book. The three volumes of Interest Rate Modeling present a comprehensive and up-to-date treatment of techniques and models used in /5(14). Prerequisites: Computing in Finance, or equivalent programming skills; and Financial Securities and Markets, or equivalent familiarity with Black-Scholes interest rate models. Description: This half-semester class focuses on the practical workings of the fixed-income and rates-derivatives markets. The course content is motivated by a.

Downloadable! Author(s): Hull, John & White, Alan. Abstract: This paper compares different approaches to developing arbitrage-free models of the term structure. It presents a numerical procedure that can be used to construct a wide range of one-factor models of the short rate that are both Markov and consistent with the initial term structure of interest rates. Interest Rate Models Oren Cheyette, Ph.D. Vice President Fixed Income Research BARRA, Inc. n interest rate model is a probabilistic description of the future evolu-tion of interest rates. Based on today’s information, future interest rates are uncertain: An interest rate model is File Size: KB.


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A numerical study of one-factor interest rate models by Zhong Ge Download PDF EPUB FB2

One-Factor Interest-Rate Models and the Valuation of Interest-Rate Derivative Securities Article (PDF Available) in Journal of Financial and Quantitative Analysis 28(02) June with.

This paper is organized as follows. First, an overview of different interest rate models is presented, including a description of the one- and two-factor Hull-White models. Next, a numerical methodology based on trinomial trees is discussed. The following section discusses. CHAPTER 4 One-Factor Short-Rate Models Vasicek Model Definition (Short-rate dynamics in the Vasicek model).

In the Vasicek model, the short rate is assumed to satisfy the stochastic differential equation dr(t)=k(θ −r(t))dt+σdW(t), where k,θ,σ >0andW is a Brownian motion under the risk-neutral measure.

Theorem (Short rate in the Vasicek model).File Size: 85KB. That study demonstrated the small influence of fluctuations in the interest rate on option prices. Now we examine the situation when the market becomes less “complete”.

Fig. 5 (b), (c) show the curves for both pricing models using the parameters κ = 5, Σ = and κ = 1, Σ =by: 3. b. One- factor vs. multiple-factor models. One-factor models, such as short rate models like the Cox Ingersoll and Ross (CIR) and Black Derman and Toy (BDT) models, assume that the entire term structure of interest rates can be inferred with reference to the process underlying a single factor (e.g.

the short rate). The short rate. Under a short rate model, the stochastic state variable is taken to be the instantaneous spot rate. The short rate, then, is the (continuously compounded, annualized) interest rate at which an entity can borrow money for an infinitesimally short period of time from ying the current short rate does not specify the entire yield curve.

Interest rates fluctuate with time and, similar to the equity case, there exists a market of derivatives linked to the level of interest rates. Time value of money: $1 to be paid in 1 year form now is worth less than $1 paid in 2 years form now. For example, if 1- and 2-year interest rates are both.

[13] J. Hull and A. White, One factor interest rate models and the valuation of interest rate derivative securities, Journal of Financial and Quantitative A nalysis, 28 (), – 3. One-Factor Short-Rate Models. Two-Factor Short-Rate Models. The Heath-Jarrow-Morton (HJM) Framework.

The LIBOR and Swap Market Models (LFM and LSM). Cases of Calibration of the LIBOR Market Model. Monte Carlo Tests for LFM Analytical Approximations. Other Interest-Rate Models --pt. Pricing Derivatives in Practice. on stochastic differential equations for the evolution of the short rate.

In the following chapter, we describe multifactor models, since one-factor models cannot adequately explain the full complexity of the yield curve dynamics.

We study the two-factor Hull and White model, Green’s functions and a multifactor Gaussian : Xiaoxue Shan. ISBN: OCLC Number: Description: xx, pages: illustrations ; 25 cm.

Contents: 1. On the conventional and pure multi-period loan structure Differential systems models for asset prices under uncertainty Constant maturity, one-factor dynamic models for term structure estimation Constant maturity, bilevel models for term structure estimation 36 6.

TWO-FACTOR SHORT-RATE MODELS Theorem (Forward-rate dynamics in the G2++ model). In the G2++ model, the simply-compounded forward interest rate for the period [T,S] satisfies the stochastic differential equationFile Size: 99KB.

2 INTEREST-RATE MODELS: AN INTRODUCTION By Andrew J.G. Cairns Heriot-Watt University Edinburgh. Book Description Atlantic Financial Press, United States, Hardback. Condition: New. Language: English. Brand new Book.

The three volumes of Interest Rate Modeling present a comprehensive and up-to-date treatment of techniques and models used in the pricing and risk management of.

An interest rate swap is a contract in which two parties agree to exchange interest rate cash flows, based on a specified notional amount from a fixed rate, known as the swap rate to a floating rate, typically a LIBOR rate (or vice versa).

We denote the notional by /, and the swap rate by 0. Get this from a library. Interest rate modeling. [Leif B G Andersen; Vladimir V Piterbarg] -- "The three volumes of Interest rate modeling are aimed primarily at practitioners working in the area of interest rate derivatives, but much of the material is quite general and, we believe, will.

This paper compares different approaches to developing arbitrage-free models of the term structure. It presents a numerical procedure that can be used to construct a wide range of one-factor models of the short rate that are both Markov and consistent with the initial term structure of Cited by: John Hull and Alan White, "Numerical procedures for implementing term structure models II," Journal of Derivatives, Winterpp 37–48 John Hull and Alan White, "The pricing of options on interest rate caps and floors using the Hull–White model" in Advanced Strategies in Financial Risk Management, Chapter 4, pp 59– practical numerical realizations of derivative pricing models.

We furthermore put a special attention to the comparison of theoretically computed results to financial market data. Interest rate modeling Market models, products and risk management (following [AP], [AP] and [AP]) Alan Marc Watson July 5, Abstract This document contains a brief summary of Andersen and Piterbarg’s superb three-volume treatise on xed-income derivatives.

I have used this as a self-study File Size: 1MB. native to the risk-neutral measure when pricing interest rate derivatives.

A number of short-rate models, in which the evolution of the entire term structure is driven by a single interest rate, namely the short rate, are cov-ered in Chapter 3.

In particular, the Merton, Vasicek and one-factor andˇFile Size: KB.Concerning interest rate models: We start with a thorough discussion of one-factor short-rate models (Vasicek, CIR, Hull-White) then proceed to more advanced topics such as two-factor Hull-White, forward rate models (HJM) and the LIBOR market model.interest rates.

The issue of pricing interest rate derivatives has been addressed by the financial literature in a number of different ways. One of the oldest approaches is based on modeling the evaluation of the instantaneous short interest rate.

This is still quite popular for pricing interest rate derivatives and for risk management purposes.