Epstein, D. (1999) Uncertain interest rate modelling. PhD thesis, University of Oxford.

PDF
1MB 
Abstract
In this thesis, we introduce a nonprobabilistic model for the shortterm interest rate. The key concepts involved in this new approach are the nondiffusive nature of the short rate process and the uncertainty in the model parameters. The model assumes the worst possible outcome for the short rate path when pricing a fixedincome product (from the point of view of the holder) and differs in many important ways from the traditional approaches of fully deterministic or stochastic rates. In this new model, delta hedging and unique pricing play no role, nor does any market price of risk term appear. We present the model and explore the analytical and numerical solutions of the associated partial differential equation. We show how to optimally hedge the interest rate risk of a fixedincome portfolio and price and hedge common and exotic fixedincome products. Finally, we consider extensions to the model and present conclusions and areas for further research.
Item Type:  Thesis (PhD) 

Subjects:  O  Z > Partial differential equations D  G > Game theory, mathematical finance, economics, social and behavioral sciences H  N > Numerical analysis 
Research Groups:  Mathematical and Computational Finance Group 
ID Code:  35 
Deposited By:  Eprints Administrator 
Deposited On:  10 Mar 2004 
Last Modified:  29 May 2015 18:15 
Repository Staff Only: item control page