Abstract this thesis investigates hedging strategies for a book of interest rate swaps of the currencies eur and sek the aim is to minimize the variance of the portfolio and keep the transaction costs down the analysis is performed us- ing historical simulation for two different cases first, with the real. This thesis finally, i would also like to express my gratitude to tor gillberg at bank of america merill lynch in london for providing me with feedback gsr gaussian short rate hw1f hull-white 1-factor model irs interest rate swap isda international swap and derivatives association lsm. The present thesis is a step in the investigation of the empirical properties and de terminants of swap spreads and the estimation of volatility swap spreads are a very important variable in financial markets, being defined as the difference between the fixed rate in an interest rate swap and the yield of a government bond. The implementation of the interest rate models to price constant maturity swap ( cms) derivatives the theoretical framework that a pricing model should deal with will be introduced the no arbitrage condition and the change of numéraire technique will also be presented this chapter is mainly based on. I gabriele luigi sarais declare that this thesis is my own work and has not been submitted in any form for i develop a model to price inflation and interest rates derivatives using continuous-time dynamics linked 62 dva of the inflation swap (10 years maturity, 100 eur million notional) as a function of. The obligation to enter into a specific interest rate swap at a predetermined moment in time we can valuate swaptions using (an extension of) the black- scholes-merton for- mula, which is in the next section we will mostly focus our attention on swaptions in this thesis, and they are more extensively treated. However, since the cash flow generated by a swap is equal to an interest rate times that notional amount, the cash flow generated from swaps is a substantial fraction of but much less than the gross world product—which is also a cash-flow measure the majority of this (usd 2920 trillion) was due to interest rate swaps. Retrospective theses and dissertations by an authorized administrator of iowa state university digital repository for more information, please contact digirep @iastateedu recommended citation vang, david olaf, the role of interest rate swaps in financial institutions (1988) retrospective theses and dissertations.
In this thesis, i look into a hedge fund strategy known as a yield curve arbitrage, where arbitrageurs take relative value bets on interest rates earlier research has shown that the strategy produces favourable returns in the usd swap rates market in 1988-2004 my objective is to study whether the strategy yields attractive. In financial markets, there are primarily two types of swaps: fixed-for-floating rate swaps known as interest rate swaps and swaps of different currencies known as cross currency swaps in an interest rate swap, one party will agree to make floating-rate payments based on some floating index, say 3 month libor and the other. Two popular products on the interest rate market are constant maturity swap ( cms) deriva- tives and cms spread derivatives this thesis focusses on the efficient pricing of cms and cms spread derivatives, in particular the pricing of cms and cms spread options the notional values for these products are usually quite. The market observed so-called “volatility smile” into the lmm, utilizing the concept of forward rate dependent instantaneous volatility the thesis ends the floating interest may for example be the libor rate a swap agreement consists of a number of swaplets each swaplet prescribes the swap of fixed.
This thesis even though we are not in the same city, you have always been available for my questions i would also like to thank family and friends for your 42 norwegian swap rates from december 31, 2003 to december 31 the aim with this thesis is to describe and calibrate interest rate models that. Interest-rate risk management and the usage of interest-rate swap derivatives in state owned enterprises: a portuguese case study written by joão aguiar jorge da silva supervised by professor cláudia alexandra gonçalves correia ribeiro, phd master thesis in economics school of economics and management.
Title: the driving force of swap spread author: bing liang supervisor: anders hederstierna department: business administration, blekinge institute of technology course: master's thesis in business administration, 10 credits background and problem discussion: the determinants of interest rate swap. Division of applied mathematics master thesis in mathematics / applied mathematics valuation of cancelable interest rate swaps via hull-white trinomial tree model by sergii gryshkevych masterarbete i matematik / tillämpad matematik division of applied mathematics school of education, culture and communication.
An interest rate swap is an agreement between two counterparties in which one stream of future interest payments is exchanged for another based on a specified principal amount interest rate swaps usually involve the exchange of a fixed interest rate for a floating rate, or vice versa, to reduce or increase exposure to. And exciting aspects of interest rate derivatives pricing, and for part-time employing me at product development group, quantitative analytics papers that form the basis for this thesis many thanks to frank de jong and joanne 25 alternative method for calculating swap vega 29 26 numerical results. Valuation of interest rate swaps in the presence of counterparty credit risk master thesis in finance school of business, economics and law supervisor: alexander herbertsson master degree project no2012: robin axelsson.
Interest rates irb internal rating based approach irr interest rate risk irs interest rate swap isda international swaps and derivatives association itm thesis summary the thesis is structured in two main parts part 1 is dedicated to a specific issue around interest rate risk management, while part 2 deals with. Invest and motivated by the actuality and importance of the topic, the the- sis examines a new framework for pricing interest rate swaps that correctly incorporates basis spreads in the first part of the thesis, the traditional bootstrapping approach will be revisited here, the construction of the spot curve involves several steps. Focusing on interest rate derivatives, this thesis develops a framework for analy- sis to compare end-user costs this thesis hopes to clarify how the new clearing requirements will affect end-users 11 problem in pricing of interest rate and currency swaps by considering the credit spread pricing of standardized swaps.
Risks in interest-rate and inflation markets allan sall tang andersen advisor : bjarne astrup jensen phd dissertation department of finance copenhagen business swap rate however, trolle and schwartz (2010) acknowledge that their model will understate volatility and skewness for short-term swaptions our. Thesis: msc june 2014 in this dissertation we take a look at the rise of interest rate basis spreads in the market following the liquidity and credit crunch of 2008 of collateral as well as reconciling the spread between ois and vanilla interest rate swaps overnight indexed swap a type of interest rate swap exchanging. 12 survey of literature 13 thesis structure 2 preliminaries 21 general framework 22 the standard market models 221 black's model 222 bond options 223 interest rate caps 224 european swap options 225 generalizations 23 hull-white model 231 model formulation 232 pricing bond options within. Of actual defaults this thesis is examining the properties of cva, how to measure ccr and why it is important to be able to accurately model it the model risk for cva is investigated for an interest rate swap contract in a cir-framework the sensitivity of the cva with respect to the underlying parameters in the given setting.