Advanced Search
MyIDEAS: Login to save this article or follow this journal

Valuation of volatility sensitive interest rate derivatives in an emerging market

Contents:

Author Info

  • Jiri Witzany

Abstract

We investigate valuation of volatility sensitive interest rate derivatives like the derivatives involving LIBOR or swap rates in arrears. The paper studies several alternatives of the standard convexity adjustment formula, in particular, a precise analytical formula based on an assumption of log-normality of the underlying assets applicable to a wide class of derivatives. The second problem is estimation of interest rate volatilities and correlations that are used by the formulas. We analyse possible estimation methods including an application of the HJM, LIBOR market model and the swap market model. We argue that the latter is the best in a market where swap quotes are the primary source of market information on the term structure of interest rates dynamics. We illustrate the techniques and different results on a case study of a real life controversial exotic swap.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.inderscience.com/link.php?id=35768
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Financial Markets and Derivatives.

Volume (Year): 1 (2010)
Issue (Month): 4 ()
Pages: 438-451

as in new window
Handle: RePEc:ids:ijfmkd:v:1:y:2010:i:4:p:438-451

Contact details of provider:
Web page: http://www.inderscience.com/browse/index.php?journalID==307

Related research

Keywords: interest rates; LIBOR; London Interbank Offered Rate; arrears; constant maturity swaps; convexity adjustments; swap market models; volatility valuation; emerging markets; swap rates; log-normality; underlying assets; David Heath; Robert Jarrow; Andrew Morton; HJM framework; swap quotes; market information; Prague; Deutsche Bank; Czech Republic; financial markets; derivatives; applied financial economics.;

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ids:ijfmkd:v:1:y:2010:i:4:p:438-451. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Graham Langley).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.