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Hedging performance of interest-rate models
This dissertation is a hedging back-study which assesses the effectiveness of interest- rate modelling and the hedging of interest-rate derivatives. Caps that trade in the Johannesburg swap market are hedged using two short-rate models, namely the Hull and White (1990) one-factor model and the subse...
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| Format: | Thesis |
| Language: | English |
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Division of Actuarial Science
2016
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| _version_ | 1867613289221980160 |
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| access_status_str | Open Access |
| author | Ziervogel, Graham |
| author2 | Backwell, Alex |
| author_browse | Backwell, Alex Ziervogel, Graham |
| author_facet | Backwell, Alex Ziervogel, Graham |
| author_sort | Ziervogel, Graham |
| collection | Thesis |
| description | This dissertation is a hedging back-study which assesses the effectiveness of interest- rate modelling and the hedging of interest-rate derivatives. Caps that trade in the Johannesburg swap market are hedged using two short-rate models, namely the Hull and White (1990) one-factor model and the subsequent Hull and White (1994) two-factor extension. This is achieved by using the equivalent Gaussian additive-factor models (G1++ and G2++) outlined by Brigo and Mercurio (2007). The hedges are constructed using different combinations of theoretical zero-coupon bonds. A flexible factor hedging method is proposed by the author and the bucket hedging technique detailed by Driessen, Klaasen and Melenberg (2003) is tested. The results obtained support the claims made by Gupta and Subrahmanyam (2005), Fan, Gupta and Ritchken (2007) and others in the literature that multi-factor models outperform one-factor models in hedging interest-rate derivatives. It is also shown that the choice of hedge instruments can significantly influence hedge performance. Notably, a larger set of hedge instruments and the use of hedge instruments with the same maturity as the derivative improve hedging accuracy. However, no evidence to support the finding of Driessen et al. (2003) that a larger set of hedge instruments can remove the need for a multi-factor model is found. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/20482 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:33:45.686Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2016 |
| publishDateRange | 2016 |
| publishDateSort | 2016 |
| publisher | Division of Actuarial Science |
| publisherStr | Division of Actuarial Science |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/20482 Hedging performance of interest-rate models Ziervogel, Graham Backwell, Alex Mathematical Finance This dissertation is a hedging back-study which assesses the effectiveness of interest- rate modelling and the hedging of interest-rate derivatives. Caps that trade in the Johannesburg swap market are hedged using two short-rate models, namely the Hull and White (1990) one-factor model and the subsequent Hull and White (1994) two-factor extension. This is achieved by using the equivalent Gaussian additive-factor models (G1++ and G2++) outlined by Brigo and Mercurio (2007). The hedges are constructed using different combinations of theoretical zero-coupon bonds. A flexible factor hedging method is proposed by the author and the bucket hedging technique detailed by Driessen, Klaasen and Melenberg (2003) is tested. The results obtained support the claims made by Gupta and Subrahmanyam (2005), Fan, Gupta and Ritchken (2007) and others in the literature that multi-factor models outperform one-factor models in hedging interest-rate derivatives. It is also shown that the choice of hedge instruments can significantly influence hedge performance. Notably, a larger set of hedge instruments and the use of hedge instruments with the same maturity as the derivative improve hedging accuracy. However, no evidence to support the finding of Driessen et al. (2003) that a larger set of hedge instruments can remove the need for a multi-factor model is found. 2016-07-20T06:56:41Z 2016-07-20T06:56:41Z 2016 Master Thesis Masters MPhil http://hdl.handle.net/11427/20482 eng application/pdf Division of Actuarial Science Faculty of Commerce University of Cape Town |
| spellingShingle | Mathematical Finance Ziervogel, Graham Hedging performance of interest-rate models |
| thesis_degree_str | Master's |
| title | Hedging performance of interest-rate models |
| title_full | Hedging performance of interest-rate models |
| title_fullStr | Hedging performance of interest-rate models |
| title_full_unstemmed | Hedging performance of interest-rate models |
| title_short | Hedging performance of interest-rate models |
| title_sort | hedging performance of interest rate models |
| topic | Mathematical Finance |
| url | http://hdl.handle.net/11427/20482 |
| work_keys_str_mv | AT ziervogelgraham hedgingperformanceofinterestratemodels |