Tenor-Based Interest Rate Term Structures: Roll-Over Risk Perspective

2019 ◽  
Author(s):  
Alex Backwell ◽  
Andrea Macrina ◽  
Erik Schloegl ◽  
David Skovmand
Keyword(s):  
Interest Rate ◽  
Term Structures

Informational Content in Interest Rate Term Structures

1993 ◽  
Vol 75 (4) ◽  
pp. 695 ◽  
Author(s):  
Robert O. Edmister ◽  
Dilip B. Madan
Keyword(s):  
Interest Rate ◽  
Informational Content ◽  
Term Structures

scholarly journals Estimating the Short Rate from the Term Structures in the Vasicek Model

2014 ◽  
Vol 61 (1) ◽  
pp. 87-103
Author(s):  
Jana Halgašová ◽  
Beáta Stehlíková ◽  
Zuzana Bučková
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Calibration Method ◽  
Current Level ◽  
Model Parameters ◽  
Bond Prices ◽  
Vasicek Model ◽  
Term Structures ◽  
Short Rate Models

Abstract In short rate models, bond prices and term structures of interest rates are determined by the parameters of the model and the current level of the instantaneous interest rate (so called short rate). The instantaneous interest rate can be approximated by the market overnight, which, however, can be influenced by speculations on the market. The aim of this paper is to propose a calibration method, where we consider the short rate to be a variable unobservable on the market and estimate it together with the model parameters for the case of the Vasicek model

scholarly journals How to handle negative interest rates in a CIR framework

SeMA Journal ◽  
2021 ◽  
Author(s):  
Marco Di Francesco ◽  
Kevin Kamm
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Yield Curve ◽  
Analytical Formula ◽  
Market Prices ◽  
Cir Model ◽  
Term Structures ◽  
Negative Interest Rates ◽  
The Difference ◽  
Mean Variance

AbstractIn this paper, we propose a new model to address the problem of negative interest rates that preserves the analytical tractability of the original Cox–Ingersoll–Ross (CIR) model without introducing a shift to the market interest rates, because it is defined as the difference of two independent CIR processes. The strength of our model lies within the fact that it is very simple and can be calibrated to the market zero yield curve using an analytical formula. We run several numerical experiments at two different dates, once with a partially sub-zero interest rate and once with a fully negative interest rate. In both cases, we obtain good results in the sense that the model reproduces the market term structures very well. We then simulate the model using the Euler–Maruyama scheme and examine the mean, variance and distribution of the model. The latter agrees with the skewness and fat tail seen in the original CIR model. In addition, we compare the model’s zero coupon prices with market prices at different future points in time. Finally, we test the market consistency of the model by evaluating swaptions with different tenors and maturities.

OPTION RISK MEASUREMENT WITH TIME-DEPENDENT PARAMETERS

2000 ◽  
Vol 03 (03) ◽  
pp. 581-589 ◽  
Author(s):  
C. F. LO ◽  
P. H. YUEN ◽  
C. H. HUI
Keyword(s):  
Interest Rate ◽  
Option Pricing ◽  
Risk Measurement ◽  
Time Dependent ◽  
Model Parameters ◽  
Cev Model ◽  
Equity Options ◽  
Market Values ◽  
Term Structures ◽  
Option Values

In value-at-risk (VaR) methodology of option risk measurement, the determination of market values of the current option positions under various market scenarios is critical. Under the full revaluation and factor sensitivity approach which are accepted by regulators, accurate revaluation and precise factor sensitivity calculation of options in response to significant moves in market variables are important for measuring option risks in terms of VaR figures. This paper provides a method for pricing equity options in the constant elasticity variance (CEV) model environment using the Lie-algebraic technique when the model parameters are time-dependent. Analytical solutions for option values incorporating time-dependent model parameters are obtained in various CEV processes. The numerical results, which are obtained by employing a very efficient computing algorithm similar to the one proposed by Schroder [11], indicate that the option values are sensitive to the time-dependent volatility term structures. It is also possible to generate further results using various functional forms for interest rate and dividend term structures. From the analytical option pricing formulae, one can achieve more accuracy to compute factor sensitivities using more realistic term-structures in volatility, interest rate and dividend yield. In view of the CEV model being empirically considered to be a better candidate in equity option pricing than the traditional Black–Scholes model, more precise risk management in equity options can be achieved by incorporating term-structures of interest rates, volatility and dividend into the CEV option valuation model.

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