\`x^2+y_1+z_12^34\`
Advanced Search
Article Contents
Article Contents

Interest rates risk-premium and shape of the yield curve

Abstract Related Papers Cited by
  • We apply the general theory of pricing in incomplete markets, due to the author, on the problem of pricing bonds for the Hull-White stochastic interest rate model. As pricing in incomplete markets involves more market parameters than the classical theory, and as the derived risk premium is time-dependent, the proposed methodology might offer a better way for replicating different shapes of the empirically observed yield curves. For example, the so-called humped yield curve can be obtained from a normal yield curve by only increasing the investors risk aversion.
    Mathematics Subject Classification: Primary: 60H10, 60G40, 93E20.

    Citation:

    \begin{equation} \\ \end{equation}
  • [1]

    D. Becherer, Utility-indifference hedging and valuation via reaction-diffusion systems, Proc. R. Soc. Lond. A, 460 (2004), 27-51.doi: 10.1098/rspa.2003.1234.

    [2]

    F. Black and M. Scholes, The pricing of options and corporate liabilities, J. Political Econ., 81 (1973), 637-654.doi: 10.1086/260062.

    [3]

    D. Brigo and F. Mercurio, Interest Rate Models Theory and Practice, Springer, Berlin, 2001.doi: 10.1007/978-3-662-04553-4.

    [4]

    M. Davis, V. G. Panas and T. Zariphopoulou, European option pricing with transaction costs, SIAM Journal on Control and Optimization, 31 (1993), 470-493.doi: 10.1137/0331022.

    [5]

    A. Friedman, Stochastic Differential Equations, Vol 1 & 2, Academic Press, New York, 1975.

    [6]

    S. D. Hodges and A. Neuberger, Optimal replication of contingent claims under transaction costs, Review of Futures Markets, 8 (1989), 222-239.

    [7]

    J. Hull and A. White, Pricing interest-rate derivative securities, The Review of Financial Studies, 3 (1990), 573-592.doi: 10.1093/rfs/3.4.573.

    [8]

    L. Jiang, Mathematical Modeling and Methods of Option Pricing, World Scientific Publishing, Singapore, 2005.doi: 10.1142/5855.

    [9]

    J. Kallsen, Utility-based derivative pricing in incomplete markets, Mathematical Finance-Bachelier Congress 2000, H. Geman, D. Madan, S. R. Pliska, T. Vorst (Eds.), Springer, Berlin, 2002, 313-338.

    [10]

    Z. Kang and S. Stojanovic, Interest rate risk premium and equity valuation, Journal of Systems Science and Complexity, 23 (2010), 484-498.doi: 10.1007/s11424-010-0142-y.

    [11]

    G. Liang and L. Jiang, A modified structural model for credit risk, IMA Journal of Management Mathematics, 23 (2012), 147-170.doi: 10.1093/imaman/dpr004.

    [12]

    R. C. Merton, Theory of rational option pricing, Bell Journal of Economics and Management Science, 4 (1973), 141-183.doi: 10.2307/3003143.

    [13]

    R. C. Merton, Continuous-Time Finance, Wiley-Blackwell, 1990.

    [14]

    M. Musiela and T. Zariphopoulou, An example of indifference prices under exponential preferences, Finance and Stochastics, 8 (2004), 229-239.doi: 10.1007/s00780-003-0112-5.

    [15]

    R. Rouge and N. El Karoui, Pricing via utility maximization and entropy, Mathematical Finance, 10 (2000), 259-276.doi: 10.1111/1467-9965.00093.

    [16]

    S. Stojanovic, Computational Financial Mathematics using MATHEMATICA®, Birkhauser, Boston, 2003.doi: 10.1007/978-1-4612-0043-7.

    [17]

    S. Stojanovic, Risk premium and fair option prices under stochastic volatility: The HARA solution, C. R. Acad. Sci. Paris Ser. I, 340 (2005), 551-556.doi: 10.1016/j.crma.2004.11.002.

    [18]

    S. Stojanovic, Stochastic Volatility & Risk Premium, Lecture Notes, GARP, New York, 2005.

    [19]

    S. Stojanovic, Pricing and hedging of multi type contracts under multidimensional risks in incomplete markets modeled by general Itô SDE systems, Asia Pacific Financial Markets, 13 (2006), 345-372.

    [20]

    S. Stojanovic, Advanced Financial Engineering for Interest Rates, Equity, and FX, Lecture Notes, GARP, New York, 2007.

    [21]

    S. Stojanovic, Any-utility neutral and indifference pricing and hedging, Risk and Decision Analysis, 4 (2013), 103-118.

    [22]

    S. Stojanovic, Neutral and Indifference Portfolio Pricing, Hedging and Investing, Springer, New York, 2011.

    [23]

    O. Vasicek, An equilibrium characterization of the term structure, Journal of Financial Economics, 5 (1977), 177-188.doi: 10.1002/9781119186229.ch6.

  • 加载中
SHARE

Article Metrics

HTML views() PDF downloads(149) Cited by(0)

Access History

Other Articles By Authors

Catalog

    /

    DownLoad:  Full-Size Img  PowerPoint
    Return
    Return