Description: We consider Libor market model and calibration process. We estimate some interest rate derivatives such as Caps and Swaptions. We use Monte Carlo methods with appropriate dynamics under spot measure and forward measure. Imposing martingale discretization property, the same quantities are estimated again to see a contrast or discrepancy in light of confidence interval. Based on algorithms discussed in the paper, “Arbitrage-free discretizations of lognormal forward Libor and swap rate models” by Glasserman, P and Zhao, X 2000, the algorithms are implemented in excel VBA. Starting with current market data such as FRAs and Bond Prices, we describe steps involved to estimate the price of interest rate derivatives such as Caps and Swaptions, which would be beneficial to the practitioners in the industry.

Description: This paper examines the pricing of catastrophe risk bonds. Catastrophe risk cannot be hedged by traditional securities. Therefore the pricing of catastrophe risk bonds requires an incomplete markets setting and this creates special difficulties in the pricing methodology. The paper briefly discusses the theory of equilibrium pricing and its relationship to the standard arbitrage-free valuation framework. Equilibrium pricing theory is used to develop a pricing method based on a model of the term structure of interest rates and a probability structure for the catastrophe risk. This pricing methodology can be used to assess the default spread on catastrophe risk bonds relative to traditional defaultable securities.

Description: This article explains the 2009 changes to the Global Credit Default Swap contract and North American conventions. It is reprinted with permission from The Markit Magazine.

Description: Competition for space in distribution channels has resulted in a proliferation of exotic options embedded in variable annuity products. This article discusses how this has created a need which can be addressed, in part, by hedging variable annuity guarantees with long-dated equity derivatives.

Description: The Investment Symposium is a day-and-a-half long seminar that will focus on the issues and questions faced by investors and risk managers, especially related to insurance companies and retirement plans. Presenters will discuss the big picture issues and explore practical solutions to today’s challenges. Experts will share new approaches to portfolio management and cutting edge research in asset-liability management. Technology, regulation and the economic environment will

Description: 1994 SOA Spring Meeting, Orlando. In this session the speaker provided an overview of derivatives including: 1. Definition. 2. Uses. 3. Types of risks - market, credit, legal, and systems. 4. Risk management. 5. US regulatory guidelines and developments.

Description: Article, Swaps and the Swaps Yield Curve by Joseph G. Haubrich, reprinted with permission. From Risks and Rewards, February 2004, Issue No. 44. This article was originally published in Economic Commentary in December 2001. Reprinted with permission.

Description: Describes the construction of the CBOE's VIX index. Shows mathematically how the variance of investment returns is reflected in the price of the index. Provides a rational explanation of technical factors that lead the index to perform inconsistently with market sentiment. Highly relevant for any hedger seeking to use the VIX index.

Description: In this session from the 2005 SOA New Orleans Meeting, panelists discuss the ever-growing range of credit-derivative instruments that are becoming available including credit default swaps - CDSs, replicated synthetic asset transaction - RSAT and synthetic collateral debt obligations - CDOs. From the Record of the Society of Actuaries, Volume 31, No. 1.

Description: In 1993, the Chicago Board of Trade introduced a futures contract on a financial index that reflects the insurance claims emerging from catastrophes in a portfolio of policies. This article presents a valuation formula for the contract, under the assumption that catastrophes emerge as a Poisson process over time and that the claims from each catastrophe emerge as a Compound Poisson process. The formula is developed by taking conditional expectations with respect to a history of information that includes knowledge about the time of the catastrophes.