Choice of one factor interest rate term structure models for pricing and hedging Bermudan swaptions
Master Thesis
2011
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University of Cape Town
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Abstract
This paper revisits pricing and hedging differences presented by Z. Guan, et. al., 2008 from a South African context. The Asset Liabilities Management (ALM) departments in large financial institutions are plagued by a number of problems. Among them is the choice of interest rate model for managing the risks associated with mortgage (home loan) repay-ments. This paper will address these problems by comparing various one-factor models, including Hull-White, Black-Karasinski and CIR models for the pricing and hedging of long-term Bermudan Swaptions which resembles mortgage loans in banks' books.
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Includes bibliographical references
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Reference:
Holilal, A. 2011. Choice of one factor interest rate term structure models for pricing and hedging Bermudan swaptions. University of Cape Town.