Measuring Interest Rate Risk with Embedded Option Using HPL-MC Method in Fuzzy and Stochastic Environment
Under the condition of continuous innovation of financial derivatives and marketization of interest rate, interest rates fluctuate more frequently and fiercely, and the measurement of interest rate risk also attracts more attention. Under the premise that the fluctuation of interest rate follows fuz...
Saved in:
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Wiley
2020-01-01
|
| Series: | Journal of Mathematics |
| Online Access: | http://dx.doi.org/10.1155/2020/7410909 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1832561176377032704 |
|---|---|
| author | Enlin Tang Wei Du |
| author_facet | Enlin Tang Wei Du |
| author_sort | Enlin Tang |
| collection | DOAJ |
| description | Under the condition of continuous innovation of financial derivatives and marketization of interest rate, interest rates fluctuate more frequently and fiercely, and the measurement of interest rate risk also attracts more attention. Under the premise that the fluctuation of interest rate follows fuzzy stochastic process, based on the option characteristics of financial instruments with embedded option, this paper takes effective duration and effective convexity as tools to measure interest rate risk when embedded options exist, tries to choose CIR extended model as term structure model, and uses the Monte Carlo method for hybrid low deviation sequences (HPL-MC) to analyze the prepayment characteristics of MBS, a representative financial instrument with embedded options, when interest rates fluctuate; on this basis, the effectiveness of effective duration management of interest rate risk is demonstrated with asset liability management cases of commercial banks. |
| format | Article |
| id | doaj-art-c70f672ca4114913b34f79bdccdfab20 |
| institution | Kabale University |
| issn | 2314-4629 2314-4785 |
| language | English |
| publishDate | 2020-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Journal of Mathematics |
| spelling | doaj-art-c70f672ca4114913b34f79bdccdfab202025-02-03T01:25:46ZengWileyJournal of Mathematics2314-46292314-47852020-01-01202010.1155/2020/74109097410909Measuring Interest Rate Risk with Embedded Option Using HPL-MC Method in Fuzzy and Stochastic EnvironmentEnlin Tang0Wei Du1School of Finance and Mathematics, Huainan Normal University, Huainan 232038, ChinaSchool of Mathematics and Statistics, Hefei Normal University, Hefei 230601, ChinaUnder the condition of continuous innovation of financial derivatives and marketization of interest rate, interest rates fluctuate more frequently and fiercely, and the measurement of interest rate risk also attracts more attention. Under the premise that the fluctuation of interest rate follows fuzzy stochastic process, based on the option characteristics of financial instruments with embedded option, this paper takes effective duration and effective convexity as tools to measure interest rate risk when embedded options exist, tries to choose CIR extended model as term structure model, and uses the Monte Carlo method for hybrid low deviation sequences (HPL-MC) to analyze the prepayment characteristics of MBS, a representative financial instrument with embedded options, when interest rates fluctuate; on this basis, the effectiveness of effective duration management of interest rate risk is demonstrated with asset liability management cases of commercial banks.http://dx.doi.org/10.1155/2020/7410909 |
| spellingShingle | Enlin Tang Wei Du Measuring Interest Rate Risk with Embedded Option Using HPL-MC Method in Fuzzy and Stochastic Environment Journal of Mathematics |
| title | Measuring Interest Rate Risk with Embedded Option Using HPL-MC Method in Fuzzy and Stochastic Environment |
| title_full | Measuring Interest Rate Risk with Embedded Option Using HPL-MC Method in Fuzzy and Stochastic Environment |
| title_fullStr | Measuring Interest Rate Risk with Embedded Option Using HPL-MC Method in Fuzzy and Stochastic Environment |
| title_full_unstemmed | Measuring Interest Rate Risk with Embedded Option Using HPL-MC Method in Fuzzy and Stochastic Environment |
| title_short | Measuring Interest Rate Risk with Embedded Option Using HPL-MC Method in Fuzzy and Stochastic Environment |
| title_sort | measuring interest rate risk with embedded option using hpl mc method in fuzzy and stochastic environment |
| url | http://dx.doi.org/10.1155/2020/7410909 |
| work_keys_str_mv | AT enlintang measuringinterestrateriskwithembeddedoptionusinghplmcmethodinfuzzyandstochasticenvironment AT weidu measuringinterestrateriskwithembeddedoptionusinghplmcmethodinfuzzyandstochasticenvironment |