Pricing and risk management of interest rate swaps

Date, Paresh; Mamon, Rogemar; Wang, I-Chieh

doi:10.1016/j.ejor.2012.11.032

Cited by 9 publications

(8 citation statements)

References 63 publications

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“…Regarding interest rates, Mitra et al (2013) argued that as it increases, banks charge more for business loans, resulting in reducing the ability of customers to buy products and services, thus raising demand risk. This phenomenon can cause price fluctuations in supply activities (Lee et al, 2016).…”

Section: Conceptual Frameworkmentioning

confidence: 99%

Managing risks and system performance in supply network: a conceptual framework

Quang

Hara

2019

IJLSM

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Examining a certain risk will provide an insight into a single dimension, but a picture of different risks in the supply chain (SC) is still lacking, as risks do not take place independently, but typically simultaneously. This research aims to propose and validate a conceptual framework for linking various dimensions of risks to system performance in the SC. To this end, first, risks in supply network were identified by applying SC mapping -a new approach in SC risk body of literature. Then the theoretical conceptual framework comprising a holistic set of SC risks was proposed. In this model, risks were classified into three categories with regard to their level of impact on performance, i.e. core risks (supply, operational and demand risks), infrastructure risks (finance, information and time risks) and external risk. Empirical evidence at Vietnam construction industry showed that a total of nine SC risks were established. Accordingly, there are two new concepts formed from operational risk, namely (1) investor-related operational risks and (2) contractor-related operational risks. External risk moreover was split into two new dimensions: (1) human-made risks and (2) natural risks. Except for relationships between demand risk & SC performance and between SC risks & financial performance, these risks have mutual interaction and detrimentally affect SC performance. Using this framework, companies will have a systematic view of risks in the whole SC network whereby they can define risks in their own context and ascertain critical SC risks that cause negative effects on SC performance. Moreover, this framework can be used as a 'guidemap' in an effort to mitigate SC risks.

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Section: Conceptual Frameworkmentioning

confidence: 99%

Managing risks and system performance in supply network: a conceptual framework

Quang

Hara

2019

IJLSM

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“…Under further assumption that the interest rate follows some stochastic process, the ZCBP can be valued; see [6,20]. There are many researches on pricing and managing on IRS; for example, see [15,13,19] To deal with the default risks, there are primarily two types of models, the structural and intensity ones (it is also called reduced form one), respectively. A structural model came from Merton's work ( [18], 1974), which set predetermined barriers between asset and debt to define the time of a default.…”

Section: Introductionmentioning

confidence: 99%

A double obstacle model for pricing bi-leg defaultable interest rate swaps

Chen

Liang²

2019

Eur. J. Appl. Math

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Two mathematical models under so-called intensity and structure frameworks to pricing a double defaultable interest rate swap are established. The default could happen or jump to a high probability in both fixed and floating parties on the predetermined boundaries. The models lead to a new and interesting mathematical problem. As the intensity approaches infinity in designated regions, the solutions of the intensity models converge to a solution of a structure-type model which is an initial value problem of a partial differential equation coupled with two obstacles problem in their restricted regions. According to the value of the fixed rate, three cases are discussed. The free boundary that determines the swap rate and the free boundaries that determine the earlier termination of the contract (due to counterparty’s default) are analysed.

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“…Secondly, the increasing interest in OMS, OR, the availability of operational data (Joukhadar and Rabhi 2015) and the creation of (operational) risk measurement methodologies has only occurred in the past couple of decades. For example, although models exist in other areas of risk (for instance Mitra and Date 2010;Mitra et al 2013) models relating to quantifying OR now exist (Chorafas 2004;Loader 2002) whereas such quantitative models did not exist 25 years ago (e.g. Mitra 2013a, b).…”

Section: Introduction To Pairs Trading Operational Risk and Motivatimentioning

confidence: 99%

Firm Value and the Impact of Operational Management

Karathanasopoulos

2018

Asia-Pac Financ Markets

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Operational management has been gaining increasing importance in the financial industry and firms make substantial investments in operations management systems to reduce operational risk. Using a standard model of operational risk, it can be shown that pair trade profits reveal differences in relative operational performance between firms. Consequently, pair trade profits have implications for understanding operational performance. Moreover, although operations management systems are well established sources of firm value creation, their relation to pair trade profits are not well understood. In this paper we investigate the impact of operations management systems upon firm value in the financial sector. Firstly, we show that relative operational performance between firms can be evaluated from pair trade returns, providing a new method of measuring operational performance, and demonstrate this using 11,648 pair trades data, weekly stock price data and operational event data from 2000 to 2007. Secondly, we find that pair trade returns and operational risks vary significantly by business line and event type, implying that operational systems can improve firm performance by strategically reallocating them. Thirdly, we show that investor risk aversion varies significantly with different operational risks, implying firms should manage operational systems more strategically to reduce firm value losses. Finally, this paper offers an alternative explanation to pair trade returns compared to current research.

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Pricing and risk management of interest rate swaps

Cited by 9 publications

References 63 publications

Managing risks and system performance in supply network: a conceptual framework

Managing risks and system performance in supply network: a conceptual framework

A double obstacle model for pricing bi-leg defaultable interest rate swaps

Firm Value and the Impact of Operational Management

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