Calibration of one-factor and two-factor Hull-White models using swaptions

Kód výsledku v IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F19%3A10240124" target="_blank" >RIV/61989100:27510/19:10240124 - isvavai.cz</a>

Výsledek na webu

<a href="https://link.springer.com/article/10.1007/s10287-018-0323-z" target="_blank" >https://link.springer.com/article/10.1007/s10287-018-0323-z</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1007/s10287-018-0323-z" target="_blank" >10.1007/s10287-018-0323-z</a>

Jazyk výsledku

angličtina

Název v původním jazyce

Calibration of one-factor and two-factor Hull-White models using swaptions

Popis výsledku v původním jazyce

In this paper, we analize a novel approach for calibrating the one-factor and the two-factor Hull-White models using swaptions under a market-consistent framework. The technique is based on the pricing formulas for coupon bond options and swaptions proposed by Russo and Fabozzi (J Fixed Income 25:76-82, 2016b; J Fixed Income 27:30-36, 2017b). Under this approach, the volatility of the coupon bond is derived as a function of the stochastic durations. Consequently, the price of coupon bond options and swaptions can be calculated by simply applying standard no-arbitrage pricing theory given the equivalence between the price of a coupon bond option and the price of the corresponding swaption. This approach can be adopted to calibrate parameters of the one-factor and the two-factor Hull-White models using swaptions quoted in the market. It represents an alternative with respect to the existing approaches proposed in the literature and currently used by practitioners. Numerical analyses are provided in order to highlight the quality of the calibration results in comparison with existing models, addressing some computational issues related to the optimization model. In particular, calibration results and sensitivities are provided for the one- and the two-factor models using market data from 2011 to 2016. Finally, an out-of-sample analysis is performed in order to test the ability of the model in fitting swaption prices different from those used in the calibration process. (C) 2018 Springer-Verlag GmbH Germany, part of Springer Nature

Název v anglickém jazyce

Calibration of one-factor and two-factor Hull-White models using swaptions

Popis výsledku anglicky

In this paper, we analize a novel approach for calibrating the one-factor and the two-factor Hull-White models using swaptions under a market-consistent framework. The technique is based on the pricing formulas for coupon bond options and swaptions proposed by Russo and Fabozzi (J Fixed Income 25:76-82, 2016b; J Fixed Income 27:30-36, 2017b). Under this approach, the volatility of the coupon bond is derived as a function of the stochastic durations. Consequently, the price of coupon bond options and swaptions can be calculated by simply applying standard no-arbitrage pricing theory given the equivalence between the price of a coupon bond option and the price of the corresponding swaption. This approach can be adopted to calibrate parameters of the one-factor and the two-factor Hull-White models using swaptions quoted in the market. It represents an alternative with respect to the existing approaches proposed in the literature and currently used by practitioners. Numerical analyses are provided in order to highlight the quality of the calibration results in comparison with existing models, addressing some computational issues related to the optimization model. In particular, calibration results and sensitivities are provided for the one- and the two-factor models using market data from 2011 to 2016. Finally, an out-of-sample analysis is performed in order to test the ability of the model in fitting swaption prices different from those used in the calibration process. (C) 2018 Springer-Verlag GmbH Germany, part of Springer Nature

Druh

J_SC - Článek v periodiku v databázi SCOPUS

CEP obor

—

OECD FORD obor

50206 - Finance

Projekt

<a href="/cs/project/GA15-23699S" target="_blank" >GA15-23699S: RPF a OT aplikovaná na mezinárodních finančních trzích a problému výběru portfolio</a><br>

Návaznosti

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Rok uplatnění

2019

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název periodika

Computational Management Science

ISSN

1619-697X

e-ISSN

—

Svazek periodika

16

Číslo periodika v rámci svazku

1-2

Stát vydavatele periodika

US - Spojené státy americké

Počet stran výsledku

21

Strana od-do

275-295

Kód UT WoS článku

000458627300012

EID výsledku v databázi Scopus

2-s2.0-85048813914