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2018 | nr 38 | 41
Tytuł artykułu

Markovian and multi-curve friendly parametrisation of HJM model used in valuation adjustment of interest rate derivatives

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Języki publikacji
EN
Abstrakty
EN
We consider feasible Heath-Jarrow-Morton framework specifications that are easily implementable in XVA engines when pricing linear and non-linear interest rate derivatives in multicurve environment. Our particular focus is on relatively less liquid markets (Polish PLN) and the calibration problems arising from that fact. We first develop necessary tool-kit for multicurve construction and XVA integration and then show and discuss various specifications of HJM model with regard to their practical usage. We demonstrate the importance of Cheyette subclass and derive dynamics of instantaneous forward rates in generic form. We performed calibrations of several one-factor models of that form and found out that even with relatively simple specification i.e. Hull-White with two summands we may achieve satisfactory results in terms of calibration's quality and calculation time.
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Numer
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41
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Bibliografia
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  • M. Bianchetti, (2010) Two curves, one price, "Risk", 23, 2010, p. 66.
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  • J. Kienitz, (2013) Transforming volatility-multi curve cap and swaption volatilities, Available at SSRN: https://ssrn.com/abstract=2204702, 2013.
  • J. Kienitz, P. Caspers, (2017) Interest Rate Derivatives Explained: Volume 2: Term Structure and Volatility Modelling, Springer, 2017.
  • R. Lichters, R. Stamm, D. Gallagher, (2015) Modern Derivatives Pricing and Credit Exposure Analysis: Theory and Practice of CSA and XVA Pricing, Exposure Simulation and Backtesting, Springer, 2015.
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  • N. Moreni, A. Pallavicini, (2014) Parsimonious HJM modelling for multiple yield curve dynamics, "Quantitative Finance", 14, 2014, pp. 199-210.
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Bibliografia
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