The pricing of default-free interest rate cap, floor, and collar agreements

Article Abstract:

The paper focuses on the valuation of caps, floors, and collars in a contingent claim framework under continuous time. These instruments are interpreted as options on traded zero coupon bonds. The bond prices themselves are used as the underlying stochastic variables. This has the advantage that we end up with closed form solutions which are which are easy to compute. Special attention is devoted to the choice of the stochastic process appropriate for the price dynamics of the underlying zero coupon bonds. (Reprinted by permission of the publisher.)

Prices and rates, Zero coupon securities, Stochastic processes

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Swaps: plain and fanciful

Article Abstract:

The outstanding face amount of plain vanilla interest rate swaps exceeds two trillion dollars. While pricing and hedging of such swaps appear to be quite simple, many existing theories are based on the incorrect characterization of a swap as a simple exchange of a fixed for a floating rate note. This characterization is not consistent with standardized swap contracts and the treatment of swaps in bankruptcy. This paper provides an alternative perspective on swaps. (Reprinted by permission of the publisher.)

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Corporate yield spreads: default risky or liquidity? New evidence from the credit default swap market

Article Abstract:

A study on credit default swaps market is presented. The study analyzes the default risk component in corporate spreads.

United Kingdom, Science & research, Debt financing (Corporations), Corporate debt

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