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Pricing Interest Rate Derivatives in the Multi-Curve Framework with a Stochastic Basis
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
2015 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

The financial crisis of 2007/2008 has brought about a lot of changes in the interest rate market in particular, as it has forced to review and modify the former pricing procedures and methodologies. As a consequence, the Multi-Curve framework has been adopted to deal with the inconsistencies of the frameworks used so far, namely the single-curve method.

We propose to study this new framework in details by focusing on a set of interest rate derivatives such as deposits, swaps and caplets, then we explore a stochastic approach to model the Libor-OIS basis spread, which has appeared since the beginning of the crisis and is now the quantity of interest to which a lot of researchers dedicate their work (F.Mercurio, M.Bianchetti and others).

A discussion follows this study to set the light on the challenges and difficulties related to the modeling of basis spread.


Abstract [sv]

Den stora finanskris som inträffade 2007/2008 har visat att nya värderingsmetoder för räntederivat är nödvändiga. Den metod baserat på multipla räntekurvor som introducerats som lösning på de problem som finanskrisen synliggjort, speciellt gällande räntespread, har givit upphov till nya utmaningar och bekymmer.

I detta arbete utforskas den nya metoden baserat på multipla räntekurvor samt en stokastisk modell för räntespread. Slutsatserna och diskussionen om resultaten som presenteras tydliggör kvarvarande utmaningar vid modellering av räntespread

Place, publisher, year, edition, pages
TRITA-MAT-E, 2015:09
National Category
Probability Theory and Statistics
URN: urn:nbn:se:kth:diva-163274OAI: diva2:802181
Subject / course
Mathematical Statistics
Educational program
Master of Science in Engineering -Engineering Physics
Available from: 2015-04-11 Created: 2015-03-31 Last updated: 2016-02-15Bibliographically approved

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