10% off all books and free delivery over £50
Buy from our bookstore and 25% of the cover price will be given to a school of your choice to buy more books. *15% of eBooks.

Interest Rate Dynamics, Derivatives Pricing, and Risk Management

View All Editions (1)

The selected edition of this book is not available to buy right now.
Add To Wishlist
Write A Review

About

Interest Rate Dynamics, Derivatives Pricing, and Risk Management Synopsis

There are two types of tenn structure models in the literature: the equilibrium models and the no-arbitrage models. And there are, correspondingly, two types of interest rate derivatives pricing fonnulas based on each type of model of the tenn structure. The no-arbitrage models are characterized by the work of Ho and Lee (1986), Heath, Jarrow, and Morton (1992), Hull and White (1990 and 1993), and Black, Dennan and Toy (1990). Ho and Lee (1986) invent the no-arbitrage approach to the tenn structure modeling in the sense that the model tenn structure can fit the initial (observed) tenn structure of interest rates. There are a number of disadvantages with their model. First, the model describes the whole volatility structure by a sin- gle parameter, implying a number of unrealistic features. Furthennore, the model does not incorporate mean reversion. Black-Dennan-Toy (1990) develop a model along tbe lines of Ho and Lee. They eliminate some of the problems of Ho and Lee (1986) but create a new one: for a certain specification of the volatility function, the short rate can be mean-fteeting rather than mean-reverting. Heath, Jarrow and Morton (1992) (HJM) construct a family of continuous models of the term struc- ture consistent with the initial tenn structure data.

About This Edition

ISBN: 9783540608141
Publication date:
Author: Lin Chen
Publisher: Springer an imprint of Springer Berlin Heidelberg
Format: Paperback
Pagination: 152 pages
Series: Lecture Notes in Economics and Mathematical Systems
Genres: Finance and the finance industry
Economics