Hedging in bond markets by the Clark-Ocone formula
AbstractHedging strategies in bond markets are computed by martingale representation and the Clark-Ocone formula under the choice of a suitable of numeraire, in a model driven by the dynamics of bond prices. Applications are given to the hedging of swaptions and other interest rate derivatives, and our approach is compared to delta hedging when the underlying swap rate is modeled by a diffusion process.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1304.6165.
Date of creation: Apr 2013
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-27 (All new papers)
- NEP-FMK-2013-04-27 (Financial Markets)
- NEP-RMG-2013-04-27 (Risk Management)
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- Huang, Chi-fu, 1985. "Information structures and viable price systems," Journal of Mathematical Economics, Elsevier, vol. 14(3), pages 215-240, June.
- Jamshidian, Farshid, 2008. "Numeraire Invariance and application to Option Pricing and Hedging," MPRA Paper 7167, University Library of Munich, Germany.
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