Credit risk of interest rate swaps : a comparative study of CIR and Monte Carlo simulation approach

Fang, Victor and Lee, Vincent C. S. 2004, Credit risk of interest rate swaps : a comparative study of CIR and Monte Carlo simulation approach, Lecture notes in computer science, vol. 3177, pp. 780-787.

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Title Credit risk of interest rate swaps : a comparative study of CIR and Monte Carlo simulation approach
Author(s) Fang, Victor
Lee, Vincent C. S.
Journal name Lecture notes in computer science
Volume number 3177
Start page 780
End page 787
Total pages 8
Publisher Springer Berlin
Place of publication Berlin, Germany
Publication date 2004
ISSN 0302-9743
1611-3349
Keyword(s) Credit risk profile
Interest Rate Models
Monte Carlo Method
Summary This paper compares the credit risk profile for two types of model, the Monte Carlo model used in the existing literature, and the Cox, Ingersoll and Ross (CIR) model. Each of the profiles has a concave or hump-backed shape, reflecting the amortisation and diffusion effects. However, the CIR model generates significantly different results. In addition, we consider the sensitivity of these models of credit risk to initial interest rates, volatility, maturity, kappa and delta. The results show that the sensitivities vary across the models, and we explore the meaning of that variation.
Language eng
Field of Research 159999 Commerce, Management, Tourism and Services not elsewhere classified
Socio Economic Objective 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2004, Springer-Verlag Berlin Heidelberg
Persistent URL http://hdl.handle.net/10536/DRO/DU:30042549

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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