Analysis of Brazilian Interbank Deposit series: Volatility modelling and option pricing

• Grant number: 13/08360-6
• Support Opportunities: Scholarships in Brazil - Master
• Start date: September 01, 2013
• End date: December 31, 2013
• Field of knowledge: Applied Social Sciences - Economics - Quantitative Methods Applied to Economics
• Principal Investigator: Márcio Poletti Laurini
• Grantee: Roberto Baltieri Mauad
• Host Institution: Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto (FEARP). Universidade de São Paulo (USP). Ribeirão Preto , SP, Brazil

Abstract

Many of the models applied in the pricing of derivatives are based on restrictive assumptions about the volatility of the underlying object's series. Black and Scholes and Vasicek methods, for instance, consider the variance of the series as time invariant, assumption which certainly is not thoroughly consistent with reality. Therefore, alternative short term interest rate models such as Cox-Ingersoll-Ross have been created with the objective of improving the accuracy of the serie`s variance estimation. In this project, in order to price options on the Brazilian Interbank One Day Deposit Index (IDI), we will mainly contribute on the works of Vieira (1999) and Barbedo et al. (2010), wherein the pricing is conducted respectively by the models of Vasicek and Heath Jarrow Morton (HJM) and the estimation of the volatility is performed by the the principal components analyis in the work of Barbedo et al. (2010). We will develop the modelling of IDI`s volatility through the nonparametric kernel technique and, afterwards, we proceed with the pricing of the options on this asset using the Gaussian HJM model. Finally, we perform Monte Carlo simulations and compare the simulated price with the estimated price.

Academic Publications

(References retrieved automatically from State of São Paulo Research Institutions)

MAUAD, Roberto Baltieri. Analysis of Brazilian Interbank Deposit Index series: volatility modeling and option pricing. 2013. Master's Dissertation - Universidade de São Paulo (USP). Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto (PCARP/BC) Ribeirão Preto.