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Pricing Amortizing Floor Option

Economics (General Management)

Tim Xiao

Date of upload:

11.12.2022

Co-author:

Abstract:

An amortizing floor option consists of 12 floorlets, or put options, on the arithmetic average of the daily 12-month Pibor rate fixings over respective windows of approximately 30 calendar days. Furthermore the notional amount corresponding to each floorlet is specified by an amortization schedule.

GIC Redemption Option Sensitivity Calculation

Economics (General Management)

Tim Xiao

Date of upload:

23.12.2022

Co-author:

Abstract:

Flexible is a one year maturity GIC whose holder has an option to redeem the principal and accrued interest without any penalty from one month after inception till maturity. If the holder chooses to redeem the GIC within the first 30 days after inception, a zero call rate is applied.

Martingale Preserving Tree Method

Economics (General Management)

Tim Xiao

Date of upload:

29.11.2022

Co-author:

Abstract:

We propose a two-factor tree model that implements the Hull-White and Black-Karasinski models. The new tree model does preserve the martingale property of the stock for sufficiently long terms (with accuracy better that 10-8 for terms of at least 10 years).

Pricing Swap with Better-of Cliquet Option

Economics (General Management)

Tim Xiao

Date of upload:

26.01.2023

Co-author:

Abstract:

A model is developed for pricing a swap with better of cliquet option. The floating amount payer makes semi-annual payments based on USD-LIBOR-BBA minus a spread. The fixed rate payer makes a single payment at swap maturity based on the arithmetic average of the S&P 500 Index price over certain pre-specified windows of ten consecutive trading days.

Multi-currency BGM Pricing Model

Economics (General Management)

Tim Xiao

Date of upload:

24.12.2022

Co-author:

Abstract:

There is one theoretical subtlety about multi-currency models. Risk-neutral probabilities differ in both currencies, because numeraires are different. In the domestic risk-neutral probability, the expectation of the daily discounted value of a unit of domestic currency is equal to the domestic discount factor:

Equity Linked GIC Pooling Approach

Economics (General Management)

Tim Xiao

Date of upload:

26.11.2022

Co-author:

Abstract:

The equity GIC product has the property that strike levels are the closing index levels on date of issue. The proposed specification for pooling employs poolidents with the same maturity, issue date, and index levels.

Swap Average Term Computation

Economics (General Management)

Tim Xiao

Date of upload:

24.12.2022

Co-author:

Abstract:

The average term is calculated for a swap that underlies a European style payer swaption, which is in the calibration portfolio for a Bermudan swaption with amortizing notional (i.e., the outstanding notional is reduced from time-to-time). Given the payer swaption maturity and the average swap term pair, we then look up, from a table indexed by payer swaption maturity and underlying swap term, the corresponding Black’s implied volatility.

Monte Carlo Short Rate Model

Economics (General Management)

Tim Xiao

Date of upload:

25.01.2023

Co-author:

Abstract:

The Monte Carlo Multi-factor Short Rate Mode has been used extensively in pricing a variety of interest rate derivative securities. The model assumes that short rates at reset dates are lognormally distributed; the short rate at a reset time arises as the limiting spot value from a corresponding forward rate process, which is a geometric Brownian motion with drift. The short rate model is, by construction, arbitrage free, and numerical test results bear this out.

Pricing GIC Option

Economics (General Management)

Tim Xiao

Date of upload:

21.12.2022

Co-author:

Abstract:

We note that the option price depends critically on the HW volatility level. We develop a technique to calibrate the HW volatility for GIC pricing. The idea is to associate a European swaption specification to the particular GIC specification. The HW volatility can then be determined by matching the HW model price for the swaption to the swaption's market price. We note that this technique may be highly sensitive to the selection of the associated swaption; moreover, this selection must reflect the hedging strategy for the GIC embedded option.

GIC Coupon Rate Calculation

Economics (General Management)

Tim Xiao

Date of upload:

23.12.2022

Co-author:

Abstract:

We calculate the Treasury transfer coupon rate, in the case of zero coupon payment frequency, or the equivalent annualized simple rate in the case of non-zero coupon payment frequency, from which the transfer coupon rate.

Prepayment Neural Net Method

Economics (General Management)

Tim Xiao

Date of upload:

10.01.2023

Co-author:

Abstract:

A model of mortgage prepayment rates based on the neural net approach is proposed. The model for insured, closed, five-year term mortgages has been developed. The neural net prepayment model behaves consistently across the training and testing sets and outperforms a simpler predictor, the linear regression model.

Mortgage Cash Flow Modelling

Economics (General Management)

Tim Xiao

Date of upload:

16.01.2023

Co-author:

Abstract:

We model the closed monthly cash flows from a pool of mortgage. Here cash flows consist of principal and interest payments. Principal payments arise from the regular amortization of principal, as well as from scheduled and unscheduled principal pre-payments.

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