Evaluating the credit exposure of interest rate derivatives under the real-world measure

Takashi Yasuoka

    研究成果: Article査読

    抄録

    This paper examines the credit exposure evaluation properties of interest rate derivatives to manage counterparty credit risk, working with the real-world probability.We briefly introduce the Heath-Jarrow-Morton (HJM) model and the Hull-White (HW) model in connection with real-world modeling. In a backward-looking approach, a real-world model is constructed from a combination of interest rate model and historical data of forward rates. By using data from the Japanese London Interbank Offered Rate/swap markets and considering three sample periods, we construct a number of real-world models: specifically, theHWmodel, the one-factor HJM model, the threefactor HJM model and other variations. The exposure profiles of interest rate swaps are calculated from the forward-rate scenarios simulated by our real-world models. We compare the results of applying the above models, using three sample periods from the viewpoint of model validation. As a result, the potential future exposure profile under the real-world simulation reflects the volatility structure and the historical drift of the forward rates. In contrast, the risk-neutral model does not reflect the historical drift, but it does reflect the volatility structure.

    本文言語English
    ページ(範囲)69-95
    ページ数27
    ジャーナルJournal of Risk Model Validation
    12
    4
    DOI
    出版ステータスPublished - 2018 12 1

    ASJC Scopus subject areas

    • モデリングとシミュレーション
    • 財務
    • 経済学、計量経済学
    • 応用数学

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