Based On Displaced Diffusion Stochastic Volatility Libor Market Model Of Interest Rate Derivative Securities Pricing Method

As China’s interest rate market continues to accelerate the pace of reform, commercial bank interest rate risk management, the rapid expansion of the scope, the difficulty has been increasing. It can be predicted that commercial banks interest rate risk management capabilities and product pricing, innovation will become the future management of its core competencies, while interest rate swaps, forward rate agreements, interest rate futures and interest rate options are represented by interest rate derivatives in the above areas is bound to play an increasingly important role for the complex in terms of interest rate derivatives, such as interval accumulation Libor-linked structured financial products, if we can accurately pricing, so to improve the bank’s risk management will be very big boost.Based on changes in interest rates Libor features to support the no-arbitrage theory as a theory, based on the core elements of Libor market model and the value of interest rate derivative securities structural features, select Move Diffusion with stochastic volatility Libor market model has a range of cumulative characteristics pricing of structured financial products banks, using MCMC methods random Metropolis-Hastings algorithm to estimate the parameters of the model, while using Winbugs software LMM-DDSV model parameter estimation, and finally with Monte Carlo simulations of the future price of the product for prediction. By studying the Libor and interest rate models that move with diffusion and stochastic volatility term LMM-DDSV model can effectively depicts the term structure of interest rates Libor dynamic characteristics, to achieve the Libor predict the future trend of science, so that regardless is to Libor as the underlying interest rate derivatives pricing, or right to Libor benchmark interest rate as a barometer of currency interest rate risk management are of great significance.This paper is divided into six chapters:The first chapter is an introduction outlining the background of the interest rate derivative securities, including the Libor market model research situation, the pricing of interest rate derivative securities research status and stochastic volatility model parameter estimation methods study abroad status review of the literature.The second chapter is the theoretical basis for the Libor interest rate derivative securities pricing of the basic theoretical analysis, including the standard Libor market model and its extensions in the form of non-standard Libor market model, the model for the pricing of interest rate derivative securities of the scope and effect while establishing LMM-DDSV model.The third chapter describes several stochastic volatility model parameter estimation method, through Euler discretization for LMM-DDSV model discretization conversion, and this article focuses on the use of adaptive MCMC methods techniques.The fourth chapter is the use of historical data and to the right LMM-DDSV estimate the parameters of the model, this paper uses a software implementation Winbugs adaptive MCMC methods, in order to determine the model relative to the standard Libor market model and the general for the Heston model for the pricing of interest rate derivative securities is more effective.Chapter through LMM-DDSV model of interval Accumulating structured financial product pricing analysis shows that the model for the value of the products have a good simulation. Chapter VI is a summary and outlook, and review the results of this study raise prospects for future research. Finally there are the main conclusions can be drawn:First, this paper considers LMM-DDSV model relative to the standard Libor market model can better describe characteristics of the market; Second, for banks with Libor interest rate linked structured financial products, pricing, LMM-DDSV model also can play an important role; once again, through the MCMC adaptive parameter estimation Metropolis-Hastings algorithm can be proved LMM-DDSV model that best fit the term structure of interest rates Libor data dynamic characteristics; Finally, we use the Monte Carlo simulation technique Libor-linked structured financial products banks interval cumulative numerical calculation that the LMM-DDSV model can provide a good interest rate derivatives pricing path simulation and can better pricing interest rate derivatives.