Author: Publisher:
ISBN: 9788771252156
Category :
Languages : en
Pages : 0
Book Description
Dynamic term structure modeling and the LIBOR transition
Author: Dynamic Term Structure Modeling
Author: Sanjay K. NawalkhaPublisher: John Wiley & Sons
ISBN: 0470140062
Category : Business & Economics
Languages : en
Pages : 722
Book Description
Praise for Dynamic Term Structure Modeling "This book offers the most comprehensive coverage of term-structure models I have seen so far, encompassing equilibrium and no-arbitrage models in a new framework, along with the major solution techniques using trees, PDE methods, Fourier methods, and approximations. It is an essential reference for academics and practitioners alike." --Sanjiv Ranjan Das Professor of Finance, Santa Clara University, California, coeditor, Journal of Derivatives "Bravo! This is an exhaustive analysis of the yield curve dynamics. It is clear, pedagogically impressive, well presented, and to the point." --Nassim Nicholas Taleb author, Dynamic Hedging and The Black Swan "Nawalkha, Beliaeva, and Soto have put together a comprehensive, up-to-date textbook on modern dynamic term structure modeling. It is both accessible and rigorous and should be of tremendous interest to anyone who wants to learn about state-of-the-art fixed income modeling. It provides many numerical examples that will be valuable to readers interested in the practical implementations of these models." --Pierre Collin-Dufresne Associate Professor of Finance, UC Berkeley "The book provides a comprehensive description of the continuous time interest rate models. It serves an important part of the trilogy, useful for financial engineers to grasp the theoretical underpinnings and the practical implementation." --Thomas S. Y. Ho, PHD President, Thomas Ho Company, Ltd, coauthor, The Oxford Guide to Financial Modeling
On the Estimation of Term Structure Models and An Application to the United States
Author: International Monetary FundPublisher: International Monetary Fund
ISBN: 1455209589
Category : Business & Economics
Languages : en
Pages : 64
Book Description
This paper discusses the estimation of models of the term structure of interest rates. After reviewing the term structure models, specifically the Nelson-Siegel Model and Affine Term- Structure Model, this paper estimates the terms structure of Treasury bond yields for the United States with pre-crisis data. This paper uses a software developed by Fund staff for this purpose. This software makes it possible to estimate the term structure using at least nine models, while opening up the possibility of generating simulated paths of the term structure.
Dynamic Refinement of the Term Structure - Time Homogenous Term Structure Modeling
Author: Christian P. FriesPublisher:
ISBN:
Category :
Languages : en
Pages : 28
Book Description
In this note we consider a classical term structure model framework, that is, a HJM framework on a time-discrete tenor, like the LIBOR market model, using a sequence of tenor discretization, where the tenors are valid for a specific simulation time interval.The setup then allows to model dynamic refinements of the tenor structure and, as a special case, a quasi time-homogenous tenor structure.A time-homogenous tenor structure has some relevance in exposure simulations, where two requirements come together: it is desirable to model a finer tenor structure on the short end of the rate curve compared to the long end of the rate curve and, this property should persist in the simulation at a future time.The property is easily fulfilled by models, which uses an equally fine discretization at all times, e.g., a short rate model, where simulation time discretization and tenor time discretization coincide.As we will demonstrate, a refinement of the tenor structure via a simple interpolation of forward rates would either introduce a strong restriction on the model's volatility structure (as it is the case for a classical fixed tenor LIBOR market model) or introduce an arbitrage violation. The challenge in the refinement is to simulate the right stochastic drifts. Under a (milder) condition on the model's volatility structure, the drifts can be reconstructed using a single additional state variable. The additional state variable is only needed on the coarse discretization tenors, limiting the computational resources needed to implement the model.In a limit case, the approach can be used to glue together a short rate model for the short end of the rate curve and a term-structure model for the long end of the rate curve in a time-homogenous way.
Dynamic Term Structure Models
Author: Dynamic Term Structure Modeling Beyond the Paradigm of Absolute Continuity
Author: Sandrine GümbelPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Abstract: This thesis is devoted to the study of term structure modeling in interest rate markets and defaultable term structure modeling in credit risk markets. Post-crisis interest rate markets possess two main characteristics: multiple curves and discontinuities. While a lot of effort has been put in the study of the former, there is one crucial feature of discontinuities, which we will call stochastic. discontinuities, whose investigation seems to be lacking in the interest rate literature so far. This concept of discontinuities has recently been studied in a credit risk framework in Fontana and Schmidt (2018) and Gehmlich and Schmidt (2018). Stochastic discontinuities describe jumps in the underlying interest rates or processes depicting events occurring at announced dates but with a possibly unanticipated outcome. This type of events is clearly present in interest rates, as can be evidenced by jumps in the underlying rates in correspondence with meetings of the European Central Bank. We provide a general analysis of the term structure modeling of multiple curves with the presence of stochastic discontinuities and derive conditions to ensure absence of arbitrage. In particular, we provide an extended Heath-Jarrow-Morton formulation with semimartingales as driving processes. Beyond that, a general market model approach is investigated and some insightful examples in an affine framework are presented in order to show the potential of this approach. Bond prices are calibrated in a Vasi cek framework by means of machine learning techniques adapted to Gaussian processes. In credit risk we are concerned with securities that are subject to default risk. We present a general analysis of the term structure modeling of defaultable bonds allowing for discontinuities. In particular, we derive conditions to ensure absence of arbitrage in the credit risky financial market in an extended Heath-Jarrow-Morton framework with semimartingales as driving processes. We provide a similar characterization for defaultable bonds with recovery.
Dynamic Term Structure Models with Score-driven Time-varying Parameters
Author: Siem Jan KoopmanPublisher:
ISBN:
Category : Finance
Languages : en
Pages : 80
Book Description
Term-Structure Models
Author: Damir FilipovicPublisher: Springer Science & Business Media
ISBN: 3540680152
Category : Mathematics
Languages : en
Pages : 259
Book Description
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.
Dynamic Models of the Term Structure
Author: Hong YanPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
In the past 25 years, tremendous progress has been made in modeling the dynamics of the term structure of interest rates, which play an instrumental role in determining prices and hedging portfolios of fixed-income derivative securities. This article reviews the theoretical development of the dynamic models of the default-free term structure and their applications in pricing interest rate options. Classic models, sometimes termed equilibrium models, and their multifactor extensions are outlined. These models provide clear economic intuitions connecting the term structure with economic fundamentals. They also lay a foundation for the framework of the arbitrage models that price interest rate derivatives on the basis of the market prices of bonds. This framework has been expanded and enriched by recent advances in directly modeling observable market rates through the market models and in incorporating an internally consistent correlation structure through the quot;infinite-dimensionalquot; models.
A New Taxonomy of the Dynamic Term Structure Models
Author: Sanjay K. NawalkhaPublisher:
ISBN:
Category :
Languages : en
Pages : 44
Book Description
This paper gives a new taxonomy of dynamic term structure models that classifies all existing TSMs as either fundamental models or preference-free single-plus, double-plus, and triple-plus models. We exemplify the new taxonomy by considering preference-free versions of some well-known fundamental short rate models. Single-plus extensions of the fundamental models are shown to be both time-homogeneous and preference-free - two characteristics which do not simultaneously hold under any existing class of TSMs. Though the analytical apparatus for pricing fixed income securities is identical under fundamental models and single-plus models, the latter models are consistent with general non-linear forms of MPRs which may also depend upon an arbitrary set of state variables, leading to better estimates of risk-neutral parameters. The preference-free double-plus and triple-plus extensions of the fundamental models are similar to the Heath, Jarrow, and Morton [1992] models, in that time-inhomogeneous drifts and volatilities are used as quot;smoothing variablesquot; to fit the initial bond prices and initial term structure of volatilities, respectively.