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An application of short rate modelling involving roll-over risk to caplet pricing
The concept of roll-over risk encapsulates the risk that a bank sitting on an interbank panel may be unable to borrow at the interbank overnight reference rate at some point in the future. Roll-over risk is comprised of two separate risks: the risk that the bank may deteriorate in credit quality rel...
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| Format: | Thesis |
| Language: | English |
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Department of Finance and Tax
2022
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| _version_ | 1867613237295448065 |
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| access_status_str | Open Access |
| author | Montgomery, Thomas |
| author2 | Backwell, Alex |
| author_browse | Backwell, Alex Montgomery, Thomas |
| author_facet | Backwell, Alex Montgomery, Thomas |
| author_sort | Montgomery, Thomas |
| collection | Thesis |
| description | The concept of roll-over risk encapsulates the risk that a bank sitting on an interbank panel may be unable to borrow at the interbank overnight reference rate at some point in the future. Roll-over risk is comprised of two separate risks: the risk that the bank may deteriorate in credit quality relative to the 'average' bank sitting on the interbank panel and the risk that the bank may experience worse liquidity than the 'average' panel bank. Roll-over risk has been offered as a possible explanation of basis spreads which have proliferated since the Global Financial Crisis. This dissertation makes use of the established methods in order incorporate rollover risk in the pricing of a caplet based on an underlying reference rate. The caplet pricing function is compared to traditional discretised Monte Carlo techniques. The performance of the function proves more accurate and computationally efficient. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/36602 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:32:57.328Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2022 |
| publishDateRange | 2022 |
| publishDateSort | 2022 |
| publisher | Department of Finance and Tax |
| publisherStr | Department of Finance and Tax |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/36602 An application of short rate modelling involving roll-over risk to caplet pricing Montgomery, Thomas Backwell, Alex finance and tax The concept of roll-over risk encapsulates the risk that a bank sitting on an interbank panel may be unable to borrow at the interbank overnight reference rate at some point in the future. Roll-over risk is comprised of two separate risks: the risk that the bank may deteriorate in credit quality relative to the 'average' bank sitting on the interbank panel and the risk that the bank may experience worse liquidity than the 'average' panel bank. Roll-over risk has been offered as a possible explanation of basis spreads which have proliferated since the Global Financial Crisis. This dissertation makes use of the established methods in order incorporate rollover risk in the pricing of a caplet based on an underlying reference rate. The caplet pricing function is compared to traditional discretised Monte Carlo techniques. The performance of the function proves more accurate and computationally efficient. 2022-07-04T07:23:04Z 2022-07-04T07:23:04Z 2022 2022-07-04T07:13:18Z Master Thesis Masters MPhil http://hdl.handle.net/11427/36602 eng application/pdf Department of Finance and Tax Faculty of Commerce |
| spellingShingle | finance and tax Montgomery, Thomas An application of short rate modelling involving roll-over risk to caplet pricing |
| thesis_degree_str | Master's |
| title | An application of short rate modelling involving roll-over risk to caplet pricing |
| title_full | An application of short rate modelling involving roll-over risk to caplet pricing |
| title_fullStr | An application of short rate modelling involving roll-over risk to caplet pricing |
| title_full_unstemmed | An application of short rate modelling involving roll-over risk to caplet pricing |
| title_short | An application of short rate modelling involving roll-over risk to caplet pricing |
| title_sort | application of short rate modelling involving roll over risk to caplet pricing |
| topic | finance and tax |
| url | http://hdl.handle.net/11427/36602 |
| work_keys_str_mv | AT montgomerythomas anapplicationofshortratemodellinginvolvingrolloverrisktocapletpricing AT montgomerythomas applicationofshortratemodellinginvolvingrolloverrisktocapletpricing |