Pricing Interest Rate Exotic Derivatives in a Multi-Factor Framework

Funding: 2001: $30,900
2002: $25,500
2003: $25,500

Project Member(s): El-Hassan, N.

Funding or Partner Organisation: Australian Research Council (ARC Large Grant)

Start year: 2001

Summary: This project will address the problem of pricing and hedging new types of interest rate financial securities (so-called exotic options) under very general specifications for interest rate volatility structures and multiple sources of interest rate risk. The project will develop new mathematical representations of the pricing equations that allow the development or efficient pricing algorithms. The project will then go on to calibrate the developed pricing models to market data and perform historical simulations to determine their pricing and hedging effectiveness in real market conditions.

Publications:

Chiarella, C & Ziogas, A 2005, 'Evaluation of American strangles', JOURNAL OF ECONOMIC DYNAMICS & CONTROL, vol. 29, no. 1-2, pp. 31-62.
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Chiarella, C, Clewlow, L & Musti, S 2005, 'A volatility decomposition control variate technique for Monte Carlo simulations of Heath Jarrow Morton models', EUROPEAN JOURNAL OF OPERATIONAL RESEARCH, vol. 161, no. 2, pp. 325-336.
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Chiarella, C & Sklibosios, CN 2003, 'A Class of Jump-Diffusion Bond Pricing Models within the HJM Framework', Asia-Pacific Financial Markets, vol. 10, no. 2-3, pp. 87-127.
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Chiarella, C, Craddock, M & El-Hassan, N 2003, 'An Implementation of Bouchouev's Method for a Short Time Calibration of Option Pricing Models', Computational Economics, vol. 22, no. 2/3, pp. 113-138.
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FOR Codes: Finance, Numerical Analysis, Finance and investment services, Computer software and services not elsewhere classified, Numerical analysis

Acknowledgement of Country

UTS acknowledges the Gadigal people of the Eora Nation, the Boorooberongal people of the Dharug Nation, the Bidiagal people and the Gamaygal people, upon whose ancestral lands our university stands. We would also like to pay respect to the Elders both past and present, acknowledging them as the traditional custodians of knowledge for these lands.