Full Text Available
Note: Clicking the button above will open the full text document at the original institutional repository in a new window.
Volatility level dependence and the CEV market model
Interest-rate volatility is known to be level-dependent. However, Filipovic, Larsson and Trolle (2017) found that volatility becomes more level-dependent as the interest rate approaches the zero lower bound. This varying volatility level-dependence feature motivates the use of CEV market model to mo...
Saved in:
| Main Author: | |
|---|---|
| Other Authors: | |
| Format: | Thesis |
| Language: | English |
| Published: |
Graduate School of Business (GSB)
2021
|
| Subjects: | |
| Tags: |
No Tags, Be the first to tag this record!
|
| _version_ | 1867613167959408640 |
|---|---|
| access_status_str | Open Access |
| author | Yeung, Alan |
| author2 | Ouwehand, Peter |
| author_browse | Ouwehand, Peter Yeung, Alan |
| author_facet | Ouwehand, Peter Yeung, Alan |
| author_sort | Yeung, Alan |
| collection | Thesis |
| description | Interest-rate volatility is known to be level-dependent. However, Filipovic, Larsson and Trolle (2017) found that volatility becomes more level-dependent as the interest rate approaches the zero lower bound. This varying volatility level-dependence feature motivates the use of CEV market model to model the interest rate. In this dissertation, we compare the lognormal forward LIBOR market model, the CEV market model and the normal market model through regression analysis, hedging analysis and calibration analysis to assess their performance. The investigation is performed using EURIBOR 10-year interest-rate caps with various strike rates. This research work has a significant impact as the industry often needs to hedge interestrate caps. We show that although the CEV market model best calibrates to market prices, the normal market model is the best in terms of hedging interest-rate caps. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/33066 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:31:50.330Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2021 |
| publishDateRange | 2021 |
| publishDateSort | 2021 |
| publisher | Graduate School of Business (GSB) |
| publisherStr | Graduate School of Business (GSB) |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/33066 Volatility level dependence and the CEV market model Yeung, Alan Ouwehand, Peter business Interest-rate volatility is known to be level-dependent. However, Filipovic, Larsson and Trolle (2017) found that volatility becomes more level-dependent as the interest rate approaches the zero lower bound. This varying volatility level-dependence feature motivates the use of CEV market model to model the interest rate. In this dissertation, we compare the lognormal forward LIBOR market model, the CEV market model and the normal market model through regression analysis, hedging analysis and calibration analysis to assess their performance. The investigation is performed using EURIBOR 10-year interest-rate caps with various strike rates. This research work has a significant impact as the industry often needs to hedge interestrate caps. We show that although the CEV market model best calibrates to market prices, the normal market model is the best in terms of hedging interest-rate caps. 2021-03-02T20:32:39Z 2021-03-02T20:32:39Z 2020 2021-03-02T20:31:18Z Master Thesis Masters MPhil http://hdl.handle.net/11427/33066 eng application/pdf Graduate School of Business (GSB) Faculty of Commerce |
| spellingShingle | business Yeung, Alan Volatility level dependence and the CEV market model |
| thesis_degree_str | Master's |
| title | Volatility level dependence and the CEV market model |
| title_full | Volatility level dependence and the CEV market model |
| title_fullStr | Volatility level dependence and the CEV market model |
| title_full_unstemmed | Volatility level dependence and the CEV market model |
| title_short | Volatility level dependence and the CEV market model |
| title_sort | volatility level dependence and the cev market model |
| topic | business |
| url | http://hdl.handle.net/11427/33066 |
| work_keys_str_mv | AT yeungalan volatilityleveldependenceandthecevmarketmodel |