We study the relationship between bank participation in derivatives contracting and bank lending for the period 30 June 1985 through the end of 1992. Since 1985 commercial banks have become active participants in the interest-rate derivative products markets as end-users, or intermediaries, or both

At present, there is an explosion of practical interest in the pricing of interest rate (IR) derivatives. Textbook pricing methods do not take into account the leptokurticity of the underlying IR process. In this paper, such a leptokurtic behaviour is illustrated using LIBOR data, and a possible

We use simulation to develop a Markov chain approximation for the value of caplets and Bermudan interest rate derivatives in the Market Model developed by Brace, Gatarek, and Musiela (1995) and Jamshidian (1996a,b). One and two factor versions of the Market Model were numerically studied. Our

In this paper we review the hedging of interest rate derivatives priced under a risk-neutral measure, and we compute self-financing hedging strategies for various derivatives using the Clark-Ocone formula.

This teaching note shows how a binomial term structure can be used to price derivatives based on interest rates. It does not get into the issue of how to fit a binomial model of the term structure. It assumes that an arbitrage-free binomial model has already been derived. It further assumes

National Securities Clearing Corporation (NSCC) has launched a new automated system for broker/dealers to electronically establish, monitor and update their relationships with Qualified Special Representatives (QSR) and correspondent clearing partners. These relationships allow NSCC to ensure that a correspondent broker has authorized a QSR or Special Representative to submit locked-in equity data on its behalf. in this issue

Over-the-counter (OTC) interest rate derivatives include instruments such as forward rate agreements (FRAs), interest rate swaps, caps, floors, and collars. Broadly defined, a derivative instrument is a formal agreement between two parties specifying the exchange of cash payments based on changes

In this paper we analyse the superreplication approach to stochastic volatility in the case of European interest rates derivatives. We exploit some general results of [13] and [17] to prove that the minimal superstraegy is given by the solution of a nonlinear PDE associated to the model

Abstract: We present a new approach for the pricing of interest rate derivatives which allows a direct computation of option premiums without deriving a (Black-Scholes type) partial differential equation and without explicitly solving the stochastic process for the underlying variable. The approach

For the pricing of interest rate derivatives, various stochastic interest rate models are used. The shape of such a model can take very different forms, such as direct modeling of the probability distribution (e.g. a generalized beta function of second kind), a short rate model (e.g. a Hull