THE MULTI-CURVE POTENTIAL MODEL

2015 ◽  
Vol 18 (07) ◽  
pp. 1550049 ◽  
Author(s):  
THE ANH NGUYEN ◽  
FRANK THOMAS SEIFRIED
Keyword(s):  
Interest Rates ◽  
Potential Model ◽  
Potential Models ◽  
Interest Rate Derivatives ◽  
Lognormal Model ◽  
Positive Term ◽  
Term Structures ◽  
Stochastic Basis ◽  
Model Features ◽  
Special Case

We develop a general class of multi-curve potential models for post-crisis interest rates. Our model features positive stochastic basis spreads, positive term structures, and analytic pricing formulae for interest rate derivatives. Making a quanto interpretation of LIBOR lending transactions, we use a multi-currency analogy to model multiple term structures and formulate a general, tractable model of multiple term structures. As a special case of our approach, we obtain a rational lognormal model that extends the original Flesaker–Hughston (1996) rational lognormal model to a multi-curve setting. In this setting we obtain analytic pricing formulae for caps and swaptions.

scholarly journals The Dynamics of Bank Spreads and Financial Structure

2014 ◽  
Vol 04 (04) ◽  
pp. 1450014 ◽  
Author(s):  
Reint Gropp ◽  
Christoffer Kok ◽  
Jung-Duk Lichtenberger
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Banking Sector ◽  
Interest Rate Derivatives ◽  
Developed Markets ◽  
Speed Up ◽  
Pass Through ◽  
Bank Spreads ◽  
Effectiveness Of Monetary Policy

This paper investigates the effect of within banking sector competition and competition from financial markets on the dynamics of the transmission from monetary policy rates to retail bank interest rates in the euro area. We use a new dataset that permits analysis for disaggregated bank products. Using a difference-in-difference approach, we test whether development of financial markets and financial innovation speed up the pass through. We find that more developed markets for equity and corporate bonds result in a faster pass-through for those retail bank products directly competing with these markets. More developed markets for securitized assets and for interest rate derivatives also speed up the transmission. Further, we find relatively strong effects of competition within the banking sector across two different measures of competition. Overall, the evidence supports the idea that developed financial markets and competitive banking systems increase the effectiveness of monetary policy.

scholarly journals Modelos alométricos na determinação da área foliar de Bauhinia monandra Kurz

2016 ◽  
Vol 7 (3) ◽  
pp. 415
Author(s):  
Edilson Romais Schmildt ◽  
Omar Schmildt ◽  
Rodrigo Sobreira Alexandre ◽  
Adriano Alves Fernandes ◽  
Marcio Paulo Czepak
Keyword(s):  
Mathematical Models ◽  
Leaf Area ◽  
Linear Model ◽  
Potential Model ◽  
Leaf Surface ◽  
Linear Quadratic ◽  
Potential Models ◽  
Independent Variables ◽  
Model Based ◽  
Area Determination

The aim of this study was to evaluate the efficiency of the adjustment of mathematical models for determining Bauhinia monandra leaf area using the length and/or width of the leaves as independent variables. Leaves from plants with three years were used to the estimative of equations in linear, quadratic and potential models. The validation from the estimated leaf area as a function of the observed leaf area showed that the linear model based on the product of length and width of the largest leaf surface is the model that best fits. However, the leaf area determination can be represented by using only the length or width of the leaves with little loss of accuracy. A representation that better estimates Bauhinia monandra leaf area with easy application is the potential model in which xi represents the length of one of the symmetrical leaf lobes.

Derivatives Markets

2019 ◽  
pp. 151-166
Author(s):  
Halil Kiymaz ◽  
Koray D. Simsek
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Credit Derivatives ◽  
Forward Rate ◽  
Fixed Income ◽  
Over The Counter ◽  
Interest Rate Options ◽  
Interest Rate Derivatives ◽  
Fixed Income Derivatives ◽  
Derivatives Markets

Interest rate derivatives markets have enjoyed substantial growth since the late 1990s. This chapter discusses the development of these markets since 2000 and introduces the most popular interest rate derivative instruments. Although forward rate agreements and interest rate swaps are important examples of over-the-counter (OTC) products, futures on interest rates and bonds are innovations of organized exchanges. Both OTC interest rate options and exchange-traded options on interest rate futures are discussed to illustrate an overlapping area of both types of derivatives markets. Participants in debt markets are also exposed to both interest rate and credit risk. To mitigate the latter risk, the OTC fixed income derivatives markets provide credit default swaps (CDSs). As credit derivatives are also a subset of fixed income derivatives, CDSs are discussed further.

Derivatives Pricing in the Positive Interest Rates

2004 ◽  
Vol 12 (2) ◽  
pp. 157-179
Author(s):  
Joon Hee Rhee
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Analytic Solutions ◽  
Infinitely Divisible ◽  
Pricing Kernel ◽  
Derivatives Pricing ◽  
Interest Rate Derivatives ◽  
Practical Applications ◽  
Kernel Approach

This paper examines the pricing of interest rates derivatives such as caps and swaptions in the pricing kernel framework. The underlying state variable is extended to the general infinitely divisible Levy process. For computational purposes, a simple pricing kernel as in Flesaker and Hughston (1996) and Jin and Glasserman (2001) is used. The main contribution or purpose of this paper is to find several proper positive martingales, which is key role of practical applications of the pricing kernel approach with interest rates guarantee to be positive. Particularly, this paper first finds and applies a quite general type of a positive martingale process to pricing interest rate derivatives such as swaptions and range notes in the incomplete market setting. Such interest rate derivatives are hard to find analytic solutions. Consequently, this paper shows that such a choice of the positive martingale in the kernel framework is a promising approach to price interest rate derivatives

Pricing KTB Futures: An Application of Black-Karasinski Model

2002 ◽  
Vol 10 (2) ◽  
pp. 1-23
Author(s):  
Jang Gu Kang ◽  
Jeong Jin Lee
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Futures Contracts ◽  
Structure Model ◽  
Market Prices ◽  
Interest Rate Derivatives ◽  
Term Structure Model ◽  
Cost Of Carry ◽  
The Cost ◽  
Very High

Traditionally, people values KTB futures contracts using the model based on the cost-of-carry argument. However, the underlying commodity for the KTB futures is non-tradable, and so the cost of carry argument cannot be applied to the KTB futures. This paper regards KTB futures contracts as interest-rate derivatives, and prices them using the Black-Karasinski (B-K) term structure model. This paper documents that (1) the market prices of KTB futures are more close to B-K model price than the price by the cost-of-carry argument, though the KTB futures are generally underpriced in the market even under the B-K model; (2) The extent of underpricing is a decreasing function of the remaining maturity of the futures, and becomes smaller recently; (3) The cost of carry argument relatively overprices the KTB futures, and the degree of overpricing is a decreasing function of interest rates and the remaining maturity of the futures; (4) The daily resettlement in the futures contracts affects the futures price very little; (5) The trading strategies based on the theoretical pricing models produce very high trading profit.

Empirically Effective Bond Pricing Model and Analysis on Term Structures of Implied Interest Rates in Financial Crisis

2011 ◽  
Vol 19 (3) ◽  
pp. 259-292 ◽  
Author(s):  
Takeaki Kariya ◽  
Jingsui Wang ◽  
Zhu Wang ◽  
Eiichi Doi ◽  
Yoshiro Yamamura
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Bond Pricing ◽  
Pricing Model ◽  
Term Structures

ASYMPTOTIC APPROXIMATIONS FOR PRICING DERIVATIVES UNDER MEAN-REVERTING PROCESSES

2016 ◽  
Vol 19 (05) ◽  
pp. 1650030 ◽  
Author(s):  
RICHARD JORDAN ◽  
CHARLES TIER
Keyword(s):  
Interest Rates ◽  
Implied Volatility ◽  
Asymptotic Approximations ◽  
Ray Method ◽  
Interest Rate Derivatives ◽  
Put Options ◽  
Merton Model ◽  
Volatility Model ◽  
Black Scholes ◽  
Efficient Alternative

The problem of fast pricing, hedging, and calibrating of derivatives is considered when the underlying does not follow the standard Black–Scholes–Merton model but rather a mean-reverting and deterministic volatility model. Mean-reverting models are often used for volatility, commodities, and interest-rate derivatives, while the deterministic volatility accounts for the nonconstant implied volatility. Trading desks often use numerical methods for real-time pricing, hedging, and calibration when implementing such models. A more efficient alternative is to use an analytic formula, even if only approximate. A systematic approach is presented, based on the WKB or ray method, to derive asymptotic approximations to the density function that can be used to derive simple formulas for pricing derivatives. Such approximations are usually only valid away from any boundaries, yet for some derivatives the values of the underlying near the boundaries are needed such as when interest rates are very low or for pricing put options. Hence, the ray approximation may not yield acceptable results. A new asymptotic approximation near boundaries is derived, which is shown to be of value for pricing certain derivatives. The results are illustrated by deriving new analytic approximations for European derivatives and their high accuracy is demonstrated numerically.

Sign in / Sign up

Export Citation Format

Share Document