Interest Rate Dynamics, Derivatives Pricing, and Risk Management

  • Lin Chen

Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 435)

Table of contents

  1. Front Matter
    Pages i-xii
  2. Lin Chen
    Pages 37-60
  3. Lin Chen
    Pages 61-70
  4. Lin Chen
    Pages 71-75
  5. Lin Chen
    Pages 95-103
  6. Lin Chen
    Pages 105-117
  7. Lin Chen
    Pages 119-124
  8. Lin Chen
    Pages 125-126
  9. Back Matter
    Pages 127-152

About this book


There are two types of tenn structure models in the literature: the equilibrium models and the no-arbitrage models. And there are, correspondingly, two types of interest rate derivatives pricing fonnulas based on each type of model of the tenn structure. The no-arbitrage models are characterized by the work of Ho and Lee (1986), Heath, Jarrow, and Morton (1992), Hull and White (1990 and 1993), and Black, Dennan and Toy (1990). Ho and Lee (1986) invent the no-arbitrage approach to the tenn structure modeling in the sense that the model tenn structure can fit the initial (observed) tenn structure of interest rates. There are a number of disadvantages with their model. First, the model describes the whole volatility structure by a sin­ gle parameter, implying a number of unrealistic features. Furthennore, the model does not incorporate mean reversion. Black-Dennan-Toy (1990) develop a model along tbe lines of Ho and Lee. They eliminate some of the problems of Ho and Lee (1986) but create a new one: for a certain specification of the volatility function, the short rate can be mean-fteeting rather than mean-reverting. Heath, Jarrow and Morton (1992) (HJM) construct a family of continuous models of the term struc­ ture consistent with the initial tenn structure data.


Derivative Derivatives Pricing Hedging Risikomanagement Risk Management Term Structure Zinsstruktur

Authors and affiliations

  • Lin Chen
    • 1
  1. 1.School of Accountancy and EconomicsNanyang Technological UniversitySingapore

Bibliographic information

  • DOI
  • Copyright Information Springer-Verlag Berlin Heidelberg 1996
  • Publisher Name Springer, Berlin, Heidelberg
  • eBook Packages Springer Book Archive
  • Print ISBN 978-3-540-60814-1
  • Online ISBN 978-3-642-46825-4
  • Series Print ISSN 0075-8442
  • Buy this book on publisher's site
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