This paper describes the changes taking place in derivatives markets as a result of the 2007-2009 credit crisis. It discusses the developments of new platforms for trading, the use of central counterparties for clearing, the role of trade repositories, and the requirements for the posting of...

In this paper, we propose a way to construct a single forward-looking model for interest rates, which represents their evolution under both the Q-measure and P-measure (a joint measure model). As is well known, the market prices of contingent claims are independent of investor risk preferences....

Prior to 2007, derivatives practitioners used a zero curve that was bootstrapped from LIBOR swap rates to provide “risk-free” rates when pricing derivatives. In the last few years, when pricing fully collateralized transactions, practitioners have switched to using a zero curve bootstrapped...

Traditionally practitioners have used LIBOR and LIBOR-swap rates as proxies for risk free rates when valuing derivatives. This practice has been called into question by the credit crisis that started in 2007. Many banks now consider that overnight indexed swap (OIS) rates should be used as...

The Hull-White interest rate tree-building procedure was first outlined in the Fall 1994 issue of the Journal of Derivatives. It is becoming widely used by practitioners. This procedure is appropriate for models where there is some function x = f(r) of the short rate r that follows a mean-...

This paper provides extensions to existing procedures for representing one-factor no-arbitrage models of the short rate in the form of a tree. It allows a wide range of drift functions for the short rate to be used in conjunction with a wide range of volatility assumptions. It shows that, if the...