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Seminario Dottorato: Interest rate derivatives pricing when the short rate is a continuous time finite state Markov process

Wednesday 28 April 2010 - Valentina Prezioso

ARGOMENTI: Dottorato

SEMINARIO DOTTORATO
Wednesday 28 April 2010 h. 14:30, room 1BC/50
Valentina Prezioso (Padova - Dip. Mat. Pura e Appl.)
"Interest rate derivatives pricing when the short rate is a continuous time finite state Markov process"

-Abstract
The purpose of this presentation is to price financial products called "interest rate derivatives", namely financial instruments in which the owner of the contract has the right to pay or receive an amount of money at a fixed interest rate in a specific future date.
The pricing of these products is here obtained by assuming that the spot rate (i.e. the interest rate at which a person or an institution can borrow money for an infinitesimally short period of time) is considered as a stochastic process characterized by "absence of memory" (i.e. a time-continuous Markov chain). We develop a pricing model inspired by work of Filipovic'-Zabczyk which assumes the spot rate to be a discrete-time Markov chain: we extend their structure by considering, instead of deterministic time points, the random time points given by the jump times of the spot rate as they occur in the market. We are able to price with the same approach several interest rate derivatives and we present some numerical results for the pricing of these products.

Rif. int. C. Marastoni, T. Vargiolu, M. Dalla Riva

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