Title Portuguese:
Pricing Asian interest rate options with a Three-Factor HJM Model
Abstract:
Pricing interest rate derivatives is a challenging task that has attracted the attention of many researchers in recent decades. Portfolio and risk managers, policymakers, traders and more generally all market participants are looking for valuable information from derivative instruments. We use a standard procedure to implement the HJM model and to price IDI options. We intend to assess the importance of the principal components of pricing and interest rate hedging derivatives in Brazil, one of the major emerging markets. Our results indicate that the HJM model consistently underprices IDI options traded in the over-the-counter market while it overprices long-term options traded in the exchange studied. We also find a direct relationship between time to maturity and pricing error and a negative relation with moneyness.
Abstract Portuguese:
O apreçamento de instrumentos derivativos de taxa de juros tem atraído a atenção de muitos pesquisadores. Gerentes de risco, operadores e mais genericamente, todos os participantes do mercado, procuram informações nos derivativos. Neste trabalho, implementamos o modelo HJM para apreçar opções de IDI. O objetivo é demonstrar a importância dos componentes principais da estrutura de taxa de juros no apreçamento e no hedge dos derivativos no mercado brasileiro. Os resultados indicam que o modelo HJM consistentemente subapreça as opções de IDI no mercado de balcão e superapreça as opções de prazo maior negociadas na BM&F. Além disso, observa-se que o erro de apreçamento apresenta uma relação diretamente positiva com o tempo para vencimento e negativa com a proximidade do dinheiro.
ABNT Citation:
BARBEDO, C. H. S.; LION, O. B.; VICENTE, J. V. M. Pricing Asian interest rate options with a Three-Factor HJM Model. Revista Brasileira de Finanças, v. 8, n. 1, art. 90, p. 9-23, 2010.
APA Citation:
Barbedo, C. H. S., Lion, O. B., & Vicente, J. V. M. (2010). Pricing Asian interest rate options with a Three-Factor HJM Model. Revista Brasileira de Finanças, 8(1), 9-23.
Permalink:
https://www.spell.org.br/documentos/ver/4507/pricing-asian-interest-rate-options-with-a-three-factor-hjm-model/i/en
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