Hedging Interest Rate Derivatives (Evidence from Swaptions) in a Negative Interest Rate Environment:: A comparative analysis of Lognormal and Normal Model
2017 (English)Independent thesis Advanced level (degree of Master (Two Years)), 80 credits / 120 HE credits
Student thesis
Abstract [sv]
This thesis is about hedging interest rate derivatives in a negative interest rate environment.
The main focus is on doing a comparative analysis on how risk varies between Lognormal
and Normal models. This because Lognormal models do not work in the negative interest rate
since they do not allow negative values, hence there is a need of using Normal models. The
use of different models will yield identical price but different hedges. In order to study this
we looked at the case of Swaptions and Swaps as an example of interest rate derivatives. To
study risk in these two models we employed the method of risk matrices to measure and report
risk. We created various risk matrices for both Black model and Normal Black model which
included the price matrices, Delta and Vega matrices to study how Swaptions and Swaps with
different maturities are sensitive to changes in different parameters. We also plotted how Delta
and Vega vary between the two models.
Place, publisher, year, edition, pages
2017. , p. 70
National Category
Mathematics
Identifiers
URN: urn:nbn:se:mdh:diva-34697OAI: oai:DiVA.org:mdh-34697DiVA, id: diva2:1068004
Subject / course
Mathematics/Applied Mathematics
Presentation
2017-01-19, VÄSTERÅS,, 19:00 (English)
Supervisors
Examiners
2017-02-022017-01-302017-02-02Bibliographically approved