Risk managing bermudan swaptions in the libor BGM model

This article presents a novel approach for calculating swap vegaper bucket in the Libor BGM model. We show that for some forms of thevolatility an approach based on re-calibration may lead to a large uncertaintyin estimated swap vega, as the instantaneous volatility structure maybe distorted by re-calibration. This does not happen in the case of constantswap rate volatility. We then derive an alternative approach, not based onre-calibration, by comparison with the swap market model. The strength ofthe method is that it accurately estimates vegas for any volatility functionand at a low number of simulation paths. The key to the method is thatthe perturbation in the Libor volatility is distributed in a clear, stable andwell understood fashion, whereas in the re-calibration method the change involatility is hidden and potentially unstable.risk management;libor BGM model;central interest rate model;bermudan swaptions;swap market model

Rank reduction of correlation matrices by majorization

In this paper a novel method is developed for the problem of finding a low-rank correlation matrix nearest to a given correlation matrix. The method is based on majorization and therefore it is globally convergent. The method is computationally efficient, is straightforward to implement, and can handle arbitrary weights on the entries of the correlation matrix. A simulation study suggests that majorization compares favourably with competing approaches in terms of the quality of the solution within a fixed computational time. The problem of rank reduction of correlation matrices occurs when pricing a derivative dependent on a large number of assets, where the asset prices are modelled as correlated log-normal processes.correlation matrix;lognormal price processes;majorization;rank

A Comparison of Single Factor Markov-Functional and Multi Factor Market Models

We compare single factor Markov-functional and multi factor market models for hedging performance of Bermudan swaptions. We show that hedging performance of both models is comparable, thereby supporting the claim that Bermudan swaptions can be adequately riskmanaged with single factor models. Moreover, we show that the impact of smile can be much larger than the impact of correlation. We propose a new method for calculating risk sensitivities of callable products in market models, which is a modification of the least-squares Monte Carlo method. The hedge results show that this new method enables proper functioning of market models as risk-management tools

Generic Market Models

Currently, there are two market models for valuation and risk management of interest rate derivatives, the LIBOR and swap market models. In this paper, we introduce arbitrage-free constant maturity swap (CMS) market models and generic market models featuring forward rates that span periods other than the classical LIBOR and swap periods. We develop generic expressions for the drift terms occurring in the stochastic differential equation driving the forward rates under a single pricing measure. The generic market model is particularly apt for pricing of Bermudan CMS swaptions, fixed-maturity Bermudan swaptions, and callable hybrid coupon swaps

Risk managing bermudan swaptions in the libor BGM model

This article presents a novel approach for calculating swap vega per bucket in the Libor BGM model. We show that for some forms of the volatility an approach based on re-calibration may lead to a large uncertainty in estimated swap vega, as the instantaneous volatility structure may be distorted by re-calibration. This does not happen in the case of constant swap rate volatility. We then derive an alternative approach, not based on re-calibration, by comparison with the swap market model. The strength of the method is that it accurately estimates vegas for any volatility function and at a low number of simulation paths. The key to the method is that the perturbation in the Libor volatility is distributed in a clear, stable and well understood fashion, whereas in the re-calibration method the change in volatility is hidden and potentially unstable

Pricing Models for Bermudan-Style Interest Rate Derivatives

Bermuda-stijl rente derivaten vormen een belangrijke klasse van opties. Veel bancaire en verzekeringsproducten, zoals hypotheken, vervroegd aflosbare obligaties, en levensverzekeringen, bevatten Bermuda rente opties, die een gevolg zijn van de mogelijkheid tot vervroegde terugbetaling of stopzetting van het contract. Het veel voorkomen van deze opties maakt duidelijk dat het belangrijk is, voor banken en verzekeraars, om de waarde en risico van deze producten op de juiste manier in te schatten. Het juist inschatten van het risico maakt het mogelijk om markt risico af te dekken met onderliggende en regelmatig verhandelde waardes en opties. Waarderingsmodellen moeten arbitrage-vrij zijn, en dienen gekalibreerd te zijn aan prijzen van actief verhandelde onderliggende opties. De dynamica van de modellen moet overeen komen met de geobserveerde dynamica van de rente-termijnstructuur, zoals bijvoorbeeld correlatie tussen rentestanden. Bovendien moeten waarderingsalgoritmes efficiënt zijn: Financiële beslissingen gebaseerd op derivaten waarderingsberekeningen worden veeleer binnen enkele seconden genomen, dan binnen uren of dagen. In recente jaren is een succesvolle klasse van modellen naar voren gekomen, genaamd markt modellen. Dit proefschrift breidt de theorie van markt modellen uit, door: (i) een nieuwe, efficiënte en meer nauwkeurige benaderende waarderingstechniek te introduceren, (ii) twee nieuwe en snelle algoritmes voor correlatie-kalibratie te presenteren, (iii) nieuwe modellen te ontwikkelen die een efficiënte kalibratie toestaan voor een hele nieuwe klasse van derivaten, zoals vaste-looptijd Bermuda rente opties, en (iv) nieuwe empirische vergelijkingen te presenteren van bestaande kalibratie technieken en modellen, in termen van reductie van risico.Bermudan-style interest rate derivatives are an important class of options. Many banking and insurance products, such as mortgages, cancellable bonds, and life insurance products, contain Bermudan interest rate options associated with early redemption or cancellation of the contract. The abundance of these options makes evident that their proper valuation and risk measurement are important to banks and insurance companies. Risk measurement allows for offsetting market risk by hedging with underlying liquidly traded assets and options. Pricing models must be arbitrage-free, and calibrated to prices of actively traded underlying options. Model dynamics need be consistent with observed dynamics of the term structure of interest rates, e.g., correlation. Moreover, valuation algorithms need be efficient: Derivatives pricing calculations need be performed in seconds, rather than hours or days. Recently, a successful class of models appeared in the literature known as market models. This thesis extends market model theory: (i) it introduces a new, efficient, and more accurate approximate pricing technique, (ii) it presents two new fast algorithms for correlation-calibration, (iii) it develops new models enabling efficient calibration for a new range of derivatives, such as fixed-maturity Bermudan swaptions, and (iv) it presents novel empirical comparisons of hedge performance of existing calibrations and models.Raoul Pietersz was born on 12 June 1978 in Rotterdam, The Netherlands. In 2000, he obtained a Certificate of Advanced Studies in Mathematics (Mathematical Tripos Part III), with distinction, from the University of Cambridge. Over the academic year 1999-2000, he was awarded a title of Cambridge European Trust Scholar, and a retrospective title of Scholar at Peterhouse, Cambridge. In the summer of 2000, he completed internships at UBS Warburg and Dresdner Kleinwort Wasserstein, in London. In 2001, he obtained a first class M.Sc. degree in Mathematics from Leiden University. His Master’s thesis entitled “The LIBOR market model”was completed during an internship at ABN AMRO Bank, in Amsterdam. Over the period 1997-2001, he was awarded the Shell International Scholarship for undergraduate studies. His Ph.D. research, under supervision of Antoon Pelsser and Ton Vorst, focuses on the efficient valuation and risk management of interest rate derivatives. He has published articles in The Journal of Computational Finance, The Journal of Derivatives, Quantitative Finance, Risk Magazine and Wilmott Magazine. He has presented his research at various international conferences. His teaching experience includes lecturing taught Master courses on derivatives at the Rotterdam School of Management. Since the start of the Ph.D. period, he has held a part-time position at ABN AMRO Bank, initially at Quantitative Risk Analytics, Risk Management. Since July 2004, he is a Senior Derivatives Researcher, developing front-office pricing models for interest rate derivatives, at Product Development Group, Quantitative Analytics, as part of Structured Derivatives

Pendekatan Indeks Vegetasi untuk Mengevaluasi Kenyamanan Termal Menggunakan Data Satelit Landsat-Tm di Kota Ambon

The objectives of the research were to obtain correlation model between NDVI (Normalized Density Value Index) and Freshness Index, to examine the capability of Landsat-TM satellite to show opened green space in controlling the effect of heat island, to know the level of freshness in Ambon town, and to produce layout of opened green space of Ambon town in relation with the need of freshness of the communities. The result of the research showed that Landsat-TM satellite can be used to detect the green space area of the Ambon town. Based on the classification of NDVI through Landsat-TM satellite, the Ambon town has 899,9 hectares (3 %) of land without vegetation or scarcely vegetation, 1488,71 hectares (4 %) were low density of vegetation, 1495,34 hectares (4 %) were in middle density, and 32060, 58 hectares were in high density. NDVI had a positive correlation to the temperature and relative humidity which means that increasing of vegetation density decreased the temperature and increased the relative humidity of a certain area. Effect of the heat island to the Ambon town are identified 1267,93 hectares, and generally found in the central of town (District of Sirimau) and the new development area which followed the main road area

Pilot phase III immunotherapy study in early-stage breast cancer patients using oxidized mannan-MUC1 [ISRCTN71711835]

INTRODUCTION: Mucin 1 (MUC1) is a high molecular weight glycoprotein overexpressed on adenocarcinoma cells and is a target for immunotherapy protocols. To date, clinical trials against MUC1 have included advanced cancer patients. Herein, we report a trial using early stage breast cancer patients and injection of oxidized mannan-MUC1. METHOD: In a randomized, double-blind study, 31 patients with stage II breast cancer and with no evidence of disease received subcutaneous injections of either placebo or oxidized mannan-MUC1, to immunize against MUC1 and prevent cancer reoccurrence/metastases. Twenty-eight patients received the full course of injections of either oxidized mannan-MUC1 or placebo. Survival and immunological assays were assessed. RESULTS: After more than 5.5 years had elapsed since the last patient began treatment (8.5 years from the start of treatment of the first patient), the recurrence rate in patients receiving the placebo was 27% (4/15; the expected rate of recurrence in stage II breast cancer); those receiving immunotherapy had no recurrences (0/16), and this finding was statistically significant (P = 0.0292). Of the patients receiving oxidized mannan-MUC1, nine out of 13 had measurable antibodies to MUC1 and four out of 10 had MUC1-specific T cell responses; none of the placebo-treated patients exhibited an immune response to MUC1. CONCLUSION: The results suggest that, in early breast cancer, MUC1 immunotherapy is beneficial, and that a larger phase III study should be undertaken

Putative IKDCs are functionally and developmentally similar to natural killer cells, but not to dendritic cells

Interferon-producing killer dendritic cells (IKDCs) have been described as possessing the lytic potential of NK cells and the antigen-presenting capacity of dendritic cells (DCs). In this study, we examine the lytic function and antigen-presenting capacity of mouse spleen IKDCs, including those found in DC preparations. IKDCs efficiently killed NK cell targets, without requiring additional activation stimuli. However, in our hands, when exposed to protein antigen or to MHC class II peptide, IKDCs induced little or no T cell proliferation relative to conventional DCs or plasmacytoid DCs, either before or after activation with CpG, or in several disease models. Certain developmental features indicated that IKDCs resembled NK cells more than DCs. IKDCs, like NK cells, did not express the transcription factor PU.1 and were absent from recombinase activating gene-2–null, common γ-chain–null (Rag2−/−Il2rg−/−) mice. When cultured with IL-15 and -18, IKDCs proliferated extensively, like NK cells. Under these conditions, a proportion of expanded IKDCs and NK cells expressed high levels of surface MHC class II. However, even such MHC class II+ IKDCs and NK cells induced poor T cell proliferative responses compared with DCs. Thus, IKDCs resemble NK cells functionally, and neither cell type could be induced to be effective antigen-presenting cells