Pricing extremely long-dated liabilities market consistently deals with the decline in liquidity of financial instruments on long maturities. The aim is to quantify the uncertainty of rates up to maturities of a century. We assume that the interest rates follow the affine mean-reverting Vasicek...

We propose an approach to find an approximate price of a swaption in Affine Term Structure Models. Our approach is based on the derivation of approximate dynamics in which the volatility of the Forward Swap Rate is itself an affine function of the factors. Hence we remain in the affine framework...

We derive general pricing formulas for Rate of Return Guarantees in Regular Premium Unit Linked Insurance under stochastic interest rates. Our main contribution focusses on the effect of stochastic interest rates. First, we show the effect of stochastic interest rates can be interpreted as, what...

In this paper we show that discrete string models are observationally equivalent to market models. Furthermore, the parsimony of the models is investigated and determined. As a consequence of the observational equivalence we show that discrete string models are a special case of the HJM...

Using daily caps and floors market prices throughout the years 1993 and 1994, we address the open question whether spot or forward interest-rate models of the term structure provide a better fit to market prices of options. In particular, we compare the Hull and White (1994), Pelsser (1996) and...

We empirically compare Libor and Swap Market Models for the pricing of interest rate derivatives, using panel data on prices of US caplets and swaptions. A Libor Market Model can directly be calibrated to observed prices of caplets, whereas a Swap Market Model is calibrated to a certain set of...

We introduce a general class of interest rate models in which the value of pure discount bonds can be expressed as a functional of some (low-dimensional) Markov process. At the abstract level this class includes all current models of practical importance. By specifying these models in...

In this paper we address the pricing of double barrier options. To derive the density function of the first-hit times of the barriers, we analytically invert the Laplace transform by contour integration. With these barrier densities, we derive pricing formulae for new types of barrier options:...

In this article we provide a valuation formula for a quanto swaption, the interest rate equivalent of the well known equity spread option. A quanto swaption gives the owner of the option the right to enter into a quanto swap in which he has to make payments in the domestic currency determined by...

Using daily caps and floors market prices throughout the years 1993 and 1994, we address the open question whether spot or forward interest-rate models of the term structure provide a better fit to market prices of options. In particular, we compare the Hull and White (1994), Pelsser (1996) and...