Understanding and managing interest rate risks / Ren-Raw Chen.

Format:

Book

Author/Creator:

Chen, Ren-Raw.

Series:

Series in mathematical finance ; v. 1.

Series in mathematical finance ; v. 1

Language:

English

Subjects (All):

Interest rate risk--Mathematical models.

Interest rate risk.

Financial futures--Mathematical models.

Financial futures.

Fixed-income securities--Mathematical models.

Fixed-income securities.

Physical Description:

1 online resource (173 p.)

Place of Publication:

Singapore ; River Edge, N.J. : World Scientific, c1996.

Language Note:

English

Summary:

The book is a systematic summary of modern term structure theories and how interest rate contingent claims are priced under such theories. This is the first book on such an attempt. The book reviews important term structure models and chooses one model to consistantly demonstrate contingent claim pricing. Well-known models are included and their relationships are thoroughly discussed. The book also provides a complete process of model implementation from parameter estimation to hedging. Examples are provided throughout.

Contents:

PREFACE; CONTENTS; FOREWORD BY THE SERIES EDITORS; SYMBOLS AND NOTATION; ACKNOWLEDGMENTS; CHAPTER 1 BOND PRIMER; 1.1 BOND VALUATION AND YIELD TO MATURITY; 1.1.1 Concept of Arbitrage; 1.1.2 Bond Valuation; 1.1.3 Yield to Maturity; 1.2 THE TERM STRUCTURE OF INTEREST RATES OR YIELD CURVE; 1.2.1 Shape of the Yield Curve; 1.2.2 The Coupon Issue; 1.2.3 Forward Rates and Forward Prices; 1.2.4 Price-Yield Relationship; 1.5 DURATION AND CONVEXITY; 1.5.1 Definition; 1.5.2 Immunization - The Use of Duration and Convexity; CHAPTER 2 TERM STRUCTURE MODELS

2.1 INTRODUCTION TO PRICED-BY-ARBITRAGE AND RISK-NEUTRAL PRICING2.2 SINGLE-FACTOR MODELS; 2.2.1 Vasicek Model; 2.2.2 Cox-Ingersoll-Ross Model; 2.2.3 Dothan Model; 2.2.5 Discussions; 2.3 MULTI-FACTOR MODELS; 2.3.1 Brennan-Schwartz Model; 2.3.2 Richard Model; 2.3.4 Cox-Ingersoll-Ross/Langetieg Model; 2.3.5 Longstaff-Schwartz Model; 2.4 TIME-DEPENDENT PARAMETER MODELS; 2.4.1 Ho-Lee Model; 2.4.2 Hull-White Model; 2.4.3 Black-Derman-Toy Model; 2.4.4 Heath-Jarrow-Motom Model; 2.4.5 Relations Among Time-Dependent Parameter Models; 2.5. COUPON BOND; CHAPTER 3 OPTIONS AND FUTURES

3.1 FUTURES AND FORWARD3.2 BOND OPTIONS; 3.3 BOND FUTURES OPTION; 3.4 BOND FORWARD OPTION; 3.5 CONCLUSION; APPENDIX; A. Method of Separation of Variables; B. Change of Probability Measure; C. Using the Black-Scholes Result; CHAPTER 4 COMMON INTEREST RATE CONTRACTS; 4.1 EURODOLLAR FUTURES, OPTIONS, AND SHORT-TERM INTEREST RATE OPTIONS; 4.1.1 Eurodollar Futures; 4.1.2 Eurodollar Futures Options; 4.1.3 Short-Term Interest Rate Option; 4.2 TREASURY BOND FUTURES AND THE QUALITY OPTION; 4.2.1 Straight Treasury Bond Futures; 4.2.2 The Delivery Options; 4.2.3 Models for T Bond Futures

4.2.4 Two-Factor Models4.3 SWAPS; 4.3.1 The Framework; 4.3.2 Option to Cancel; 4.3.3 Option to Default; 4.3.4 Cancellation and Default; 4.3.5 Swaptions; 4.3.6 Differential Swaps; 4.3.7 A Simple Practice - Credit Exposure; 4.4 CAPS AND FLOORS; 4.4.1 Black-Scholes Valuation; 4.4.2 Valuation Under an Interest Rate Model; 4.5 MORTGAGE-BACKED SECURITIES; 4.5.1 A Mortgage; 4.5.2 The Refinance Option Formula; 4.5.3 Mortgage Bonds; 4.5.4 Collateral Mortgage Obligations; 4.5.5 Interest Only and Principal Only; 4.5.6 Other Mortgage-Backed Contracts; APPENDIX

A. Derivation of the Forward Rate with Forward MeasureB. Change of Measure; C. The Compound Option Formula for Swaps; CHAPTER 5 PARAMETER ESTIMATION; 5.1 SIMPLE REGRESSION; 5.1.1 OU Process; 5.1.2 SR Process; 5.1.3 Some Results; 5.1.4 Yield Curve Fitting Exercise; 5.2 MAXIMUM LIKELIHOOD ESTIMATION; 5.2.1 Methodology; 5.2.2 Some Results; 5.2.3 Yield Curve Fitting; 5.3 GENERALIZED METHOD OF MOMENTS; 5.3.1 Methodology; 5.3.2 Some Results; 5.4 STATE SPACE MODEL WITH KALMAN FILTERING; 5.4.1 Methodology; 5.4.2 Some Results; 5.4.3 Yield Curve Fitting; 5.5 SUMMARY

CHAPTER 6 HEDGING INTEREST RATE RISKS

Notes:

Description based upon print version of record.

Includes bibliographical references (p. [145]-153) and index.

ISBN:

9789812819338

9812819339