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Alternative Defaultable Term Structure Models

Bruti-Liberati, Nicola - 2012

The objective of this paper is to consider defaultable term structure models in a general setting beyond standard risk-neutral models. Using as numeraire the growth optimal portfolio, defaultable interest rate derivatives are priced under the real-world probability measure. Therefore, the...

Persistent link: https://www.econbiz.de/10013098072

Term Structure Modeling of SOFR : Evaluating the Importance of Scheduled Jumps

Schlögl, Erik; Skov, Jacob Bjerre; Skovmand, David - 2023

As interest rate benchmarks move from LIBOR to overnight Risk-Free Rates (RFR), it has become increasingly important for models to accurately capture the interest rate dynamics at the overnight tenor. Overnight rates closely track central bank policy rate decisions resulting, in highly...

Persistent link: https://www.econbiz.de/10014350857

Pricing of Long-Dated Commodity Derivatives : Do Stochastic Interest Rates Matter?

Cheng, Benjamin - 2020

Does modelling stochastic interest rates, beyond stochastic volatility, improve pricing performanceon long-dated commodity derivatives? To answer this question, we consider futuresprice models for commodity derivatives that allow for stochastic volatility and stochastic interestrates and a...

Persistent link: https://www.econbiz.de/10012855761

Dynamics of Market Anomalies and Measurement Errors of Risk-Free Interest Rates

Hui, Cho-Hoi - 2017

Two-market anomalies since the 2008 global financial crisis – the widespread failure of covered interest parity (CIP) in foreign exchange swaps and negative 30-year US dollar interest rate swap-Treasury spreads have been challenging for conventional asset pricing models. Using a three-factor...

Persistent link: https://www.econbiz.de/10012960845

Calibrating a Market Model to Commodity and Interest Rate Risk

Karlsson, Patrik - 2016

volatility surfaces of commodity and interest rate options. Since liquid market prices are only available for options on … interest rates and commodity prices (cross-correlation). When calibrating to options on forwards (rather than futures), the … fitting of cross-correlation preserves the (separate) calibration in the two markets (interest rate and commodity options …

Persistent link: https://www.econbiz.de/10012993132

A Consistent Framework for Modelling Basis Spreads in Tenor Swaps

Chang, Yang - 2015

The phenomenon of the frequency basis (i.e. a spread applied to one leg of a swap to exchange one floating interest rate for another of a di fferent tenor in the same currency) contradicts textbook no-arbitrage conditions and has become an important feature of interest rate markets since the...

Persistent link: https://www.econbiz.de/10013033643

A Consistent Stochastic Model of the Term Structure of Interest Rates for Multiple Tenors

Alfeus, Mesias - 2018

Explicitly taking into account the risk incurred when borrowing at a shorter tenor versus lending at a longer tenor ("roll-over risk"), we construct a stochastic model framework for the term structure of interest rates in which a frequency basis (i.e. a spread applied to one leg of a swap to...

Persistent link: https://www.econbiz.de/10012933934

Benchmarking Model of Default Probabilities of Listed Companies

Hui, Cho-Hoi; Wong, T. C.; Lo, Chi-Fai; Huang, M. X. - 2007

This paper presents a benchmarking model for validation of default probabilities of listed companies for Basel II purposes. The model is based on the recent studies on the predictive capability of structural credit risk models. Benchmark ratings and one-year default probabilities are assigned to...

Persistent link: https://www.econbiz.de/10014051021

Using Interest Rate Derivative Prices to Estimate LIBOR-OIS Spread Dynamics and Systemic Funding Liquidity Shock Probabilities

Hui, Cho-Hoi - 2013

Using interest rate derivative market prices, this paper derives the term structure of the LIBOR-overnight index swap (OIS) spread, which is considered as the funding liquidity risk premium, following the Cox–Ingersoll–Ross model. The probability density functions of the LIBOR-OIS spread...

Persistent link: https://www.econbiz.de/10013095123

Discriminatory Power and Predictions of Defaults of Structural Credit Risk Models

Wong, T. C. - 2010

This paper studies the discriminatory power and calibration quality of the structural credit risk models under the 'exogenous default boundary' approach including those proposed by Longstaff and Schwartz (1995) and Collin-Dufresne and Goldstein (2001), and 'endogenous default boundary' approach...

Persistent link: https://www.econbiz.de/10013150869