EconPapers    
Economics at your fingertips  
 

Pricing Range Accrual Interest Rate Swap employing LIBOR market models with jump risks

Shih-Kuei Lin, Shin-Yun Wang, Carl R. Chen and Lian-Wen Xu

The North American Journal of Economics and Finance, 2017, vol. 42, issue C, 359-373

Abstract: This research derives the LIBOR market model with jump risks, assuming that interest rates follow a continuous time path and tend to jump in response to sudden economic shocks. We then use the LIBOR model with jump risk to price a Range Accrual Interest Rate Swap (RAIRS). Given that the multiple jump processes are independent, we employ numerical analysis to further demonstrate the influence of jump size, jump volatility, and jump frequency on the pricing of RAIRS. Our results show a negative relation between jump size, jump frequency, and the swap rate of RAIRS, but a positive relation between jump volatility and the swap rate of RAIRS.

Keywords: Stochastic model in continuous time interest rate; LIBOR market model; Jump risks; Range Accrual Interest Rate Swap (RAIRS) (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062940817301158
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:42:y:2017:i:c:p:359-373

DOI: 10.1016/j.najef.2017.07.018

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-19
Handle: RePEc:eee:ecofin:v:42:y:2017:i:c:p:359-373