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Multi-curve bootstrapping and implied discounting curves in illiquid markets
The credit and liquidity crisis of 2007 has triggered a number of inconsistencies in the interest rate market, questioning some of the standard methods and assumptions used to price and hedge interest rate derivatives. It has been shown that using a single risk-free curve (constructed from market in...
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| Format: | Thesis |
| Language: | English |
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Division of Actuarial Science
2017
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| _version_ | 1867614031185969153 |
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| access_status_str | Open Access |
| author | Sender, Nina Alexandra |
| author2 | Taylor, David |
| author_browse | Sender, Nina Alexandra Taylor, David |
| author_facet | Taylor, David Sender, Nina Alexandra |
| author_sort | Sender, Nina Alexandra |
| collection | Thesis |
| description | The credit and liquidity crisis of 2007 has triggered a number of inconsistencies in the interest rate market, questioning some of the standard methods and assumptions used to price and hedge interest rate derivatives. It has been shown that using a single risk-free curve (constructed from market instruments referencing underlying rates of varying tenors) to forecast and discount cash flows is not theoretically correct. Standard market practice has evolved to a multi-curve approach, using different curves to forecast and discount cash flows. The risk-free discount curve is proxied by the Overnight-Indexed Swap (OIS) curve. In South Africa there is no liquid market for OIS. In this dissertation a method is developed to estimate the ZAR OIS curve. A cointegration relationship between the SAFEX Overnight Rate, and the 3-month JIBAR rate is shown to exist. This relationship is used in a dual bootstrap algorithm, to simultaneously estimate the ZAR OIS curve and 3-month JIBAR tenor curve, while maintaining arbitrage relationships. The tractability of this method is shown, by pricing options written on ZAR OIS. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/25447 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:45:34.502Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2017 |
| publishDateRange | 2017 |
| publishDateSort | 2017 |
| 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:11427/25447 Multi-curve bootstrapping and implied discounting curves in illiquid markets Sender, Nina Alexandra Taylor, David Mathematical Finance The credit and liquidity crisis of 2007 has triggered a number of inconsistencies in the interest rate market, questioning some of the standard methods and assumptions used to price and hedge interest rate derivatives. It has been shown that using a single risk-free curve (constructed from market instruments referencing underlying rates of varying tenors) to forecast and discount cash flows is not theoretically correct. Standard market practice has evolved to a multi-curve approach, using different curves to forecast and discount cash flows. The risk-free discount curve is proxied by the Overnight-Indexed Swap (OIS) curve. In South Africa there is no liquid market for OIS. In this dissertation a method is developed to estimate the ZAR OIS curve. A cointegration relationship between the SAFEX Overnight Rate, and the 3-month JIBAR rate is shown to exist. This relationship is used in a dual bootstrap algorithm, to simultaneously estimate the ZAR OIS curve and 3-month JIBAR tenor curve, while maintaining arbitrage relationships. The tractability of this method is shown, by pricing options written on ZAR OIS. 2017-09-28T05:29:44Z 2017-09-28T05:29:44Z 2017 Master Thesis Masters MPhil http://hdl.handle.net/11427/25447 eng application/pdf Division of Actuarial Science Faculty of Commerce University of Cape Town |
| spellingShingle | Mathematical Finance Sender, Nina Alexandra Multi-curve bootstrapping and implied discounting curves in illiquid markets |
| thesis_degree_str | Master's |
| title | Multi-curve bootstrapping and implied discounting curves in illiquid markets |
| title_full | Multi-curve bootstrapping and implied discounting curves in illiquid markets |
| title_fullStr | Multi-curve bootstrapping and implied discounting curves in illiquid markets |
| title_full_unstemmed | Multi-curve bootstrapping and implied discounting curves in illiquid markets |
| title_short | Multi-curve bootstrapping and implied discounting curves in illiquid markets |
| title_sort | multi curve bootstrapping and implied discounting curves in illiquid markets |
| topic | Mathematical Finance |
| url | http://hdl.handle.net/11427/25447 |
| work_keys_str_mv | AT senderninaalexandra multicurvebootstrappingandimplieddiscountingcurvesinilliquidmarkets |