Interest Rate Dynamics, Derivatives Pricing, and Risk Management

Lin Chen

ISBN 10: 3540608141 / ISBN 13: 9783540608141

Published by Springer, Springer, 1996

About this Item

Druck auf Anfrage Neuware - Printed after ordering - 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.

Seller Inventory # 9783540608141

Bibliographic Details

• Title: Interest Rate Dynamics, Derivatives Pricing, and Risk Management
• Publisher: Springer, Springer
• Publication Date: 1996
• Language: English
• ISBN 10: 3540608141
• ISBN 13: 9783540608141
• Binding: Taschenbuch
• Condition: Neu
• Dimensions: 235W x 155H x 10D millimeters 235 millimeters width by 155 millimeters height by 10 millimeters depth
• Weight: 265 grams

About this title

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.