Analyses different interest rate risks, presents a new model for assessment of interest rates and thereby establishes the framework for control of interest
The authors employ the recent stochastic-control-based approach to financial mathematicsto solve a problem of determination of the risk premium for a stochastic interest rate model,andthe corresponding problem of equi...The authors employ the recent stochastic-control-based approach to financial mathematicsto solve a problem of determination of the risk premium for a stochastic interest rate model,andthe corresponding problem of equity valuation.The risk premium is determined explicitly,by meansof solving a corresponding partial differential equation (PDE),in two forms:one,time-dependent,corresponding to a finite time contract expiration,and the simpler version corresponding to perpetualcontracts.As stocks are perpetual contracts,when solving the problem of equity valuation,the latterform of the risk premium is used.By means of solving the general pricing PDE,an efficient equityvaluation method was developed that is a combination of some sophisticated explicit formulas,and anumerical procedure.展开更多
In this paper, we examine further annuity-due risk model presented by Cai （Probability in the Engineering and Informational Sciences, 16（2002）, 309-324）. We consider the computation for the distribution of duratio...In this paper, we examine further annuity-due risk model presented by Cai （Probability in the Engineering and Informational Sciences, 16（2002）, 309-324）. We consider the computation for the distribution of duration of first negative surplus and the algorithm is shown for calculating probability that ruin occurs and the duration of first negative surplus takes any nonnegative integers values. Numerical illustration for the main result is given.展开更多
Monetary policies, either actual or perceived, cause changes in monetary interest rates. These changes impact the economy through financial institutions, which react to changes in the monetary rates with changes in th...Monetary policies, either actual or perceived, cause changes in monetary interest rates. These changes impact the economy through financial institutions, which react to changes in the monetary rates with changes in their administered rates, on both deposits and lendings. The dynamics of administered bank interest rates in response to changes in money market rates is essential to examine the impact of monetary policies on the economy. Chong et al. (2006) proposed an error correction model to study such impact, using data previous to the recent financial crisis. In this paper we examine the validity of the model in the recent time period, characterized by very low monetary rates. The current state of close-to-zero monetary rates is of particular relevance, as it has never been studied before. Our main contribution is a novel, more parsimonious, model and a predictive performance assessment methodology, which allows comparing it with the error correction model.展开更多
A model was proposed for addressing investment risk of the flee reserve in the form of credit or currency risk. This risk was expressed by a constant amount K （ e. g., securitization） upon an interest-increasing eve...A model was proposed for addressing investment risk of the flee reserve in the form of credit or currency risk. This risk was expressed by a constant amount K （ e. g., securitization） upon an interest-increasing event and a random variable Z representing the recovery rate of a bond or a devaluation factor. The model equation is an integro-differential equation with deviating arguments. The analytical solutions were obtained for the probability of survival as Z is a discrete random variable and as Z is a continuous random variable respectively.展开更多
Structural models of credit risk are known to present vanishing spreads at very short maturities. This shortcoming, which is due to the diffusive behavior assumed for asset values, can be circumvented by considering d...Structural models of credit risk are known to present vanishing spreads at very short maturities. This shortcoming, which is due to the diffusive behavior assumed for asset values, can be circumvented by considering discontinuities of the jump type in their evolution over time. In this paper, we extend the pricing model for corporate bond and determine the default probability in jump-diffusion model to address this issue. To make the problem clearly, we first investigate the case that the firm value follows a geometric Brownian motion under similar assumptions to those in Black and Scholes（1973）, Briys and de Varenne（1997）, i.e, the default barrier is KD （t, T） and the recovery rate is （1 -w）, where D （t, T） is the price of zero coupon default free bond and w is a constant （0 〈 w 〈 1）. By changing the numeraire, we obtain the closed-form solution for both the price of bond and default probability. Further, we consider the case of jump-diffusion and suppose that a firm will go bankruptcy if its value Vt 〈 KD （t, T） and at the same time, the bondholder will receive （1 - w） vt/k By introducing the Green function of PDE with absorbing boundary and converting the problem to an II-type Volterra integral equation, we get the closed-form expressions in series form for bond price and corresponding default probability. Numerical results are presented to show the impact of different parameters to credit spread of bond.展开更多
Regarding KMV model identification credit risk profile of small and medium-sized listed companies, at present, domestic scholars has made some achievements in the process of the KMV model combined with China’s nation...Regarding KMV model identification credit risk profile of small and medium-sized listed companies, at present, domestic scholars has made some achievements in the process of the KMV model combined with China’s national conditions. In this paper, we will amend the model by using uncertain interest rate instead of fixed rate on the basis of existing research. Comparing the uncertain KMV model to traditional KMV model with ST-listed companies and non-ST-listed companies in Shanghai and Shenzhen stock exchange, we find that it performs slightly better as a predictor in uncertain KMV model and in out of sample forecasts.展开更多
文摘Analyses different interest rate risks, presents a new model for assessment of interest rates and thereby establishes the framework for control of interest
基金supported in part by the Center for Financial Engineering at the Suzhou University, Chinathe Taft Research Center at the University of Cincinnati, USA
文摘The authors employ the recent stochastic-control-based approach to financial mathematicsto solve a problem of determination of the risk premium for a stochastic interest rate model,andthe corresponding problem of equity valuation.The risk premium is determined explicitly,by meansof solving a corresponding partial differential equation (PDE),in two forms:one,time-dependent,corresponding to a finite time contract expiration,and the simpler version corresponding to perpetualcontracts.As stocks are perpetual contracts,when solving the problem of equity valuation,the latterform of the risk premium is used.By means of solving the general pricing PDE,an efficient equityvaluation method was developed that is a combination of some sophisticated explicit formulas,and anumerical procedure.
基金The NNSF (10671072) of China"Shu Guang" project (04SG27) of Shanghai Municipal Education CommissionShanghai Education Development Foundation
文摘In this paper, we examine further annuity-due risk model presented by Cai （Probability in the Engineering and Informational Sciences, 16（2002）, 309-324）. We consider the computation for the distribution of duration of first negative surplus and the algorithm is shown for calculating probability that ruin occurs and the duration of first negative surplus takes any nonnegative integers values. Numerical illustration for the main result is given.
文摘Monetary policies, either actual or perceived, cause changes in monetary interest rates. These changes impact the economy through financial institutions, which react to changes in the monetary rates with changes in their administered rates, on both deposits and lendings. The dynamics of administered bank interest rates in response to changes in money market rates is essential to examine the impact of monetary policies on the economy. Chong et al. (2006) proposed an error correction model to study such impact, using data previous to the recent financial crisis. In this paper we examine the validity of the model in the recent time period, characterized by very low monetary rates. The current state of close-to-zero monetary rates is of particular relevance, as it has never been studied before. Our main contribution is a novel, more parsimonious, model and a predictive performance assessment methodology, which allows comparing it with the error correction model.
基金Project supported by National Natural Science Foundation of China （Grant Nos. 10471088, 60572126）
文摘A model was proposed for addressing investment risk of the flee reserve in the form of credit or currency risk. This risk was expressed by a constant amount K （ e. g., securitization） upon an interest-increasing event and a random variable Z representing the recovery rate of a bond or a devaluation factor. The model equation is an integro-differential equation with deviating arguments. The analytical solutions were obtained for the probability of survival as Z is a discrete random variable and as Z is a continuous random variable respectively.
基金Supported by the National Basic Research Program of China(973 Program)(2007CB814903)
文摘Structural models of credit risk are known to present vanishing spreads at very short maturities. This shortcoming, which is due to the diffusive behavior assumed for asset values, can be circumvented by considering discontinuities of the jump type in their evolution over time. In this paper, we extend the pricing model for corporate bond and determine the default probability in jump-diffusion model to address this issue. To make the problem clearly, we first investigate the case that the firm value follows a geometric Brownian motion under similar assumptions to those in Black and Scholes（1973）, Briys and de Varenne（1997）, i.e, the default barrier is KD （t, T） and the recovery rate is （1 -w）, where D （t, T） is the price of zero coupon default free bond and w is a constant （0 〈 w 〈 1）. By changing the numeraire, we obtain the closed-form solution for both the price of bond and default probability. Further, we consider the case of jump-diffusion and suppose that a firm will go bankruptcy if its value Vt 〈 KD （t, T） and at the same time, the bondholder will receive （1 - w） vt/k By introducing the Green function of PDE with absorbing boundary and converting the problem to an II-type Volterra integral equation, we get the closed-form expressions in series form for bond price and corresponding default probability. Numerical results are presented to show the impact of different parameters to credit spread of bond.
文摘Regarding KMV model identification credit risk profile of small and medium-sized listed companies, at present, domestic scholars has made some achievements in the process of the KMV model combined with China’s national conditions. In this paper, we will amend the model by using uncertain interest rate instead of fixed rate on the basis of existing research. Comparing the uncertain KMV model to traditional KMV model with ST-listed companies and non-ST-listed companies in Shanghai and Shenzhen stock exchange, we find that it performs slightly better as a predictor in uncertain KMV model and in out of sample forecasts.
