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Description of Valuation of Interest-Sensitive Financial Instruments

Valuations of Interest-Sensitive Financial Instruments provides in-depth analysis of the development and underpinnings of models that are essential to the financial analyst or valuation actuary. Complete coverage includes: spot and forward interest rates, discrete- and continuous-time one-factor models, multi-factor discrete- and continuous-time models, and simulation approaches.

Title Information

ISBN:

9781883249151

Pages:

155 pages

Format:

Paperback

Product Code:

16765

Publisher:

John Wiley & Sons Ltd

Published:

31/10/1996

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About David F. Babbel

David F. Babbel is a professor at the Wharton School at the University of Pennsylvania, a financial consultant for several large insurance companies. He has published prolifically in the academic and professional literature on asset/liability management, insurance, and fixed income investments. Craig B. Merrill is Associate Professor at Brigham Young University and the Grant Taggart Fellow of Insurance, Risk Management, and Financial Services.

Contents of Valuation of Interest-Sensitive Financial Instruments

1. Spot Interest Rates, Forward Interest Rates, Short Rates, and Yield-to-Maturity
Introduction
Time Points, Time Periods, and Time Lines
Spot and Forward Rates of Interest
Short Rates and Yield-to-Maturity
The Term Structure of Interest
Concluding Remarks
End Notes
Practice Exercises

2. An Introduction to Valuation of Fixed and Interest-Sensitive Cash Flows
Introduction
Valuing Fixed Cash Flows
Valuing Interest-Sensitive Cash Flows
Conclusion
End Notes
Practice Exercises
Appendix A: The Uniqueness of Yield-to-Maturity
Appendix B: The Relation between YTM and Spot Rates of Interest

3. Discrete-Time One-Factor Models
Introduction
A Simple Illustrative Model
Restrictions on Term Structure Dynamics Implied by the Absence of Arbitrage
Arbitrage-Free Models
Conclusion
End Notes
Practice Exercises

4. Continuous-Time One-Factor Models
Introduction
The Term Structure of Interest Rates
Interest Rate Contingent Securities
End Notes
Practice Exercises
Appendix: The Approaches to Valuation
Appendix Notes

5. Solution Approaches to Single-Factor Models
Introduction
The Black and Scholes Option Valuation Model
Numerical Solution Techniques
Comparison of Models for Term Structure Fitting
End Notes
Practice Exercises

6. Multi-Factor Continuous-Time Models
Introduction
Multi-Factor Term Structure Models
Conclusion
End Notes
Practice Exercises

7. Multi-Factor Discrete-Time Models
Introduction
Multi-Factor Lattices
Numerical Solutions to Partial Differential Equations
Conclusion
End Notes
Practice Exercises

8. Simulation Approaches
Introduction
Structure of Simulation Models
A Numerical Example
Advantages and Disadvantages of Simulation
Simulation through Lattices
Implementational Issues
Alternative Valuation Techniques on the Horizon
Thoughts on the Valuation of Interest-Sensitive Financial Institution Liabilities
Concluding Remarks
End Notes
Practice Exercises

Bibliography
Solutions to Exercises