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Title: Risk management with the LIBOR market model
Authors: SUN YANG
Keywords: CEV LIBOR market model, Value-at-Risk, stress testing, interest rate options
Issue Date: 1-Sep-2004
Citation: SUN YANG (2004-09-01). Risk management with the LIBOR market model. ScholarBank@NUS Repository.
Abstract: The pricing accuracy and risk properties of the constant-elasticity-volatility (CEV) market model are analyzed. It is shown that the calibration results to both caps and swaptions show small pricing errors. The whole model fit confirms the existence of strike bias in the US interest rate derivative market. Daily VaRs are computed using Monte Carlo simulation. The back testing results suggest an underestimation problem for the cap-calibration-based model while the problem is reduced in the swaption-calibration-based model. Stress test regarding price sensitivities to yield curve shape changes is conducted. The results indicate that delta-gamma hedged portfolio has strong resistance to forward curve changes.
Appears in Collections:Master's Theses (Open)

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