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      Department of Systems Engineering and Engineering Management

                             The Chinese University of Hong Kong

 

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Speaker: Prof.Masaaki Kijima, Tokyo Metropolitan University

 

Title: Reformulation of the arbitrage-free pricing method under the multi-curve environment

 

Abstract: This paper proposes a unified framework for the pricing of derivatives under the multi-curve setting. It is shown that any derivative security can be duplicated by using the underlying assets, collateral account and funding account, appropriately. A risk-neutral measure is defined accordingly under which the derivative price is determined uniquely. This idea is extended to the pricing of OIS and LIBOR discount bonds and interest-rate derivatives under the risk-neutral measure, which explains the existence of multiple yield curves simultaneously in the market. Some specific models are given to demonstrate the usefulness of our approach. Through numerical examples, we find that the discrepancy of derivative prices under the multi-curve setting from the classical ones becomes significant when the spread volatility between the collateral and funding rates exceeds some level. Joint work with Y. Muromachi.

 

Bio: Masaaki Kijima is a Professor of Financial Engineering at Tokyo Metropolitan University. He received PhD from the Simon business school, University of Rochester in 1986. Since then, he has held multiple professorships with the leading economic and mathematical departments, including Tokyo Institute of Technology and Kyoto University. He is the author of two books entitled ``Markov Processes for Stochastic Modeling" in 1997 and ``Stochastic Processes with Applications to Finance" in 2013, both published from Chapman & Hall, London. He has published more than 90 papers in international journals specializing applied probability and financial engineering. Currently, he serves as an associate editor of SIAM Journal of Financial Mathematics. 

 

 

 

This seminar is hosted by Prof Chen Nan.

 

Venue: Room 1009,

      William M.W. Mong Engineering Building (ERB),

      (Engineering Building Complex Phase 2)

      The Chinese University of Hong Kong.