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Implementing short-rate models with jumps at deterministic times
Macroeconomic announcements have a direct impact on short-term interest rates during a financial year. However, this is not directly reflected in the continuous-time interest rate models. In this paper, we work with short-rate models which include the possibility of jumps at deterministic times. An...
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| Format: | Thesis |
| Language: | English |
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Department of Finance and Tax
2023
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| _version_ | 1867613438796103680 |
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| access_status_str | Open Access |
| author | Shibduth, Darvesh Yogandar |
| author2 | Backwell, Alex |
| author_browse | Backwell, Alex Shibduth, Darvesh Yogandar |
| author_facet | Backwell, Alex Shibduth, Darvesh Yogandar |
| author_sort | Shibduth, Darvesh Yogandar |
| collection | Thesis |
| description | Macroeconomic announcements have a direct impact on short-term interest rates during a financial year. However, this is not directly reflected in the continuous-time interest rate models. In this paper, we work with short-rate models which include the possibility of jumps at deterministic times. An application of the finite-difference method enables the pricing of bonds and bond options in these short-rate models with different types of jump distributions. A closed-form solution for bond prices, when the jumps are normally distributed, is available in the literature, but not for other jump distributions. The Monte Carlo method is used to compare the finite-difference calculations for these cases. An illustration of varying important model parameters is provided in which we observe that an increase in option prices could result from an increase in the jump variances and/or volatility parameters. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/37773 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:36:09.555Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2023 |
| publishDateRange | 2023 |
| publishDateSort | 2023 |
| 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:11427/37773 Implementing short-rate models with jumps at deterministic times Shibduth, Darvesh Yogandar Backwell, Alex finance tax Macroeconomic announcements have a direct impact on short-term interest rates during a financial year. However, this is not directly reflected in the continuous-time interest rate models. In this paper, we work with short-rate models which include the possibility of jumps at deterministic times. An application of the finite-difference method enables the pricing of bonds and bond options in these short-rate models with different types of jump distributions. A closed-form solution for bond prices, when the jumps are normally distributed, is available in the literature, but not for other jump distributions. The Monte Carlo method is used to compare the finite-difference calculations for these cases. An illustration of varying important model parameters is provided in which we observe that an increase in option prices could result from an increase in the jump variances and/or volatility parameters. 2023-04-19T14:26:11Z 2023-04-19T14:26:11Z 2022 2023-04-19T14:25:48Z Master Thesis Masters MPhil http://hdl.handle.net/11427/37773 eng application/pdf Department of Finance and Tax Faculty of Commerce |
| spellingShingle | finance tax Shibduth, Darvesh Yogandar Implementing short-rate models with jumps at deterministic times |
| thesis_degree_str | Master's |
| title | Implementing short-rate models with jumps at deterministic times |
| title_full | Implementing short-rate models with jumps at deterministic times |
| title_fullStr | Implementing short-rate models with jumps at deterministic times |
| title_full_unstemmed | Implementing short-rate models with jumps at deterministic times |
| title_short | Implementing short-rate models with jumps at deterministic times |
| title_sort | implementing short rate models with jumps at deterministic times |
| topic | finance tax |
| url | http://hdl.handle.net/11427/37773 |
| work_keys_str_mv | AT shibduthdarveshyogandar implementingshortratemodelswithjumpsatdeterministictimes |