UI Postgraduate College

SENSITIVITY ANALYSIS OF INTEREST RATE DERIVATIVES IN SOME LEVY ´ MARKETS

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dc.contributor.author UDOYE, ADAOBI MMACHUKWU
dc.date.accessioned 2022-02-11T10:51:17Z
dc.date.available 2022-02-11T10:51:17Z
dc.date.issued 2019-08
dc.identifier.uri http://hdl.handle.net/123456789/959
dc.description.abstract Interest Rate Derivatives (IRDs) are generally jump-diffusion processes which are usually modelled with L´evy processes. Brownian motion has been used ex tensively for modelling IRDs, however, this does not capture the jumps inherent in the IRDs. To hedge risks in a L´evy market, it is important to consider the presence of jumps. This work was therefore designed to model IRDs driven by some subordinated L´evy processes that consider jumps. The classical Vasicek short rate model drt = a(b − rt)dt + σdWt (where rt , a, b, σ and Wt denote interest rate, speed of mean-reversion, long-term mean rate, volatility of the short rate model and Brownian motion, respectively) was extended to a model driven by subordinated L´evy processes using Itˆo formula for semimartingales. Using the extended Vasicek model, expressions for the price of IRDs: zero-coupon bond, with Variance Gamma (VG) and Normal In verse Gaussian (NIG) as the underlying sources of uncertainties, were derived. Expressions for the greeks were derived by means of Skorohod integral, Ornstein Uhlenbeck operator and the Malliavin calculus. Consequently, the greeks ob tained were used to determine the sensitivities of the parameters of the model. Monthly dataset of the Nigerian Interbank Offer Rate from 2007 to 2017 was obtained from the Central Bank of Nigeria website and used to validate the model. The greek expressions that measure the price sensitivities to interest rate, namely, the delta 4V G associated with the VG process and the delta 4NIG associated with the NIG process were obtained as 4V G = e −r0T −TE[Φ(P)]+E Φ(P) σ 2 a (e −aT −e −at)K −2 en_US
dc.language.iso en en_US
dc.subject Subordinated L´evy processes, Extended Vasicek model, Variance gamma, Normal inverse Gaussian, Greek expressions en_US
dc.title SENSITIVITY ANALYSIS OF INTEREST RATE DERIVATIVES IN SOME LEVY ´ MARKETS en_US
dc.type Thesis en_US


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