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Interest Rate Dynamics, Derivatives Pricing, and Risk Management

  • Book
  • © 1996

Overview

Authors:
  1. Lin Chen

    1. School of Accountancy and Economics, Nanyang Technological University, Singapore

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Part of the book series: Lecture Notes in Economics and Mathematical Systems (LNE, volume 435)

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Table of contents (9 chapters)

  1. Front Matter

    Pages i-xii
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  2. A Three-Factor Model of the Term Structure of Interest Rates

    • Lin Chen
    Pages 1-36

  3. Pricing Interest Rate Derivatives

    • Lin Chen
    Pages 37-60

  4. Pricing Exotic Options

    • Lin Chen
    Pages 61-70

  5. Fitting to a Given Term Structure

    • Lin Chen
    Pages 71-75

  6. A Discrete-Time Version of the Model

    • Lin Chen
    Pages 77-94

  7. Estimation of the Model

    • Lin Chen
    Pages 95-103

  8. Managing Interest Rate Risk

    • Lin Chen
    Pages 105-117

  9. Extensions of the Model

    • Lin Chen
    Pages 119-124

  10. Concluding Remarks

    • Lin Chen
    Pages 125-126

  11. Back Matter

    Pages 127-152
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Keywords

About this book

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.

Authors and Affiliations

  • School of Accountancy and Economics, Nanyang Technological University, Singapore

    Lin Chen

Bibliographic Information

  • Book Title: Interest Rate Dynamics, Derivatives Pricing, and Risk Management

  • Authors: Lin Chen

  • Series Title: Lecture Notes in Economics and Mathematical Systems

  • DOI: https://doi.org/10.1007/978-3-642-46825-4

  • Publisher: Springer Berlin, Heidelberg

  • eBook Packages: Springer Book Archive

  • Copyright Information: Springer-Verlag Berlin Heidelberg 1996

  • Softcover ISBN: 978-3-540-60814-1Published: 07 March 1996

  • eBook ISBN: 978-3-642-46825-4Published: 06 December 2012

  • Series ISSN: 0075-8442

  • Series E-ISSN: 2196-9957

  • Edition Number: 1

  • Number of Pages: XII, 152

  • Topics: Finance, general, Economics, general

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