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政大典藏 > College of Commerce > Department of Money and Banking > Periodical Articles > Item 140.119/64935

Please use this identifier to cite or link to this item: https://nccur.lib.nccu.edu.tw/handle/140.119/64935

Title:	The Pricing and Hedging of Structured notes with Systematic Jump Risk: An Analysis of the USD Knock-Out Reversed Swap
Authors:	Wang, S. Y.;Lin, Shih-Kuei 林士貴
Contributors:	金融系
Keywords:	USD knock-out reversed swap;Interest rate swap;Interest rate digital call;Caplet
Date:	2010.01
Issue Date:	2014-03-27 10:00:20 (UTC+8)
Abstract:	Most of the interest rate derivative pricing models are jump-diffusion models, where the jump risk is assumed diversifiable. In this paper, we propose a Heath–Jarrow–Morton model with systematic jump risk to derive the no-arbitrage condition using Esscher transformation. Based on the Heath–Jarrow–Morton model with systematic jump risk, the dynamic process of the LIBOR market model with systematic jump risk is then developed. By decomposing the USD knock-out reversed swap into three derivative components, i.e., interest rate swap, interest rate digital call (IRDC) and cap, the pricing of the swap can be obtained from the dynamic process of the LIBOR market model with systematic jump risk. We show how the swap issuers/investors can hedge the swap risk using these three derivative components. The numerical analyses are conducted to show the impact of jump risk on the values of IRDC, cap and swap.
Relation:	International Review of Economics and Finance,19(1), 106-118
Data Type:	article
Appears in Collections:	[Department of Money and Banking] Periodical Articles

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