Using Libor Market Model Based On Stochastic Volatility And Jump Diffusion To Price CMS-spread Range Note

Currently, the reform of interest rate liberalizationsignificantly speed the process.Shibor rates of commercial banks will become the benchmark interest rate in thefuture.But the current generation mechanism of the Shibor rate yet mature, so this studyis relatively mature Libor interest rates, which is good reference to in-depth study inShibor in the future. Secondly, after interest rate liberalization, commercial banks needmore structured financial products to control interest-rate risk, while the currentdomestic research on structured finance product pricing method is relativelyweak.studying CMS-spread rangenote, I hope to raise the level of domestic research onCMS derivatives aspects.After2008, many investors who buy structured finance products have heavy losses,even go down the drain. The main reason is the computational model of structuredfinancial products used by many investors is relatively backward. In order to improvethe computational model, I believe that LMM-SV-JD can effectively portray thedynamic characteristics of Libor interest rate term structure, and achieve the scientificpredictions of Libor interest rate trend. The paper selects two fixed-term swap ratesspreads Interval linked bond, using MCMC methods and Metropolis-Hastings algorithmto estimate the parameters of the model.Finally with the ordinary least squares MonteCarlo simulation and Monte Carlo simulation, we can get the simulate future prices.First,the article outlines the theoretical and practical significance of the researchCMS class structured financial products, research and innovation framework of thisarticle. Then, they explained the status of current research and development of liborinterest rate model.The literature review of domestic and foreign research statusparameter estimation methods research status CMS spread Interval linked bonds andrelated interest rate pricing model. Then, Ianalysisthe theoretical value of CMS-linkedbond spreads Interval. In this paper, the principle of financial engineeringdecomposition copy, the CMS-linked bond spreads interval composition of the algebraictheory of value analysis, concluded that: the value of such structured finance productsby the value of a zero-coupon bonds, floating income value and the value of callablebonds right decision.Establish LMM-SV-JD model is the core of this article. This paper uses historicaldata for calibration and sample analysis of the estimated parameters LMM-SV-JD model, and finally with the actual data inspection LMM-SV-JD, LMM-SV, LMM fittingstandard deviation, this paper uses M-H MCMC method implemented in Openbugssoftware.On the basis of LMM-SV-JD model, this paper analysis the CMS-linked bondspreads interval pricing, simulation to calculate the value of the right to earlyredemption by the least squares Monte Carlo. Finally, the paper calculates the totalvalue of the bond.From analog error comparison LMM-SV-JD, LMM-SV and LMM among view,simulation error of LMM-SV-JD which is minimum, is the best result. There is a widegap between the true value of CMS spread Interval linked bonds and the actual price.Buying this product means a serious loss. So theoretically can prove before the2008financial crisis, investors bought CMS spread Interval linked bonds wouldhavelosses.