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The Valuation of Range Notes under Affine Term Structure Models

초록

영어

In this paper, we ¯nd analytic formulas for range accrual notes and spread range accrual notes in the context of the a±ne term structure model. Two important implications related to market risk management are derived: Firstly, the hedging strategy for range accrual notes may signi¯cantly depend on the choice of the underlying interest rate model. Secondly, the ambiguity of the correlation between underlying interest rates of spread range accrual notes can give a big difficulty to the traders and risk managers on valuing them.

목차

ABSTRACT
 1 Introduction
 2 The A±ne Term Structure Model
 3 Range Accrual Notes
  3.1 Fixed Range Accrual Notes
  3.2 Floating Range Accrual Notes
 4 Spread Range Accrual Notes
 5 Implications
  5.1 Model choice and hedging strategies
  5.2 The correlation effect on SRANs
 6 Conclusion
 Appendix
 References

저자정보

  • Bong-Gyu Jang Department of Industrial and Management Engineering, POSTECH, Pohang, Korea.
  • Ji hee Yoon Department of Mathematical Science, KAIST, Daejeon, Korea.

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