Analysis of Brazilian Interbank Deposit Index series: volatility modeling and option pricing

Author(s)

Roberto Baltieri Mauad

• Document type: Master's Dissertation
• Press: Ribeirão Preto.
• Institution: Universidade de São Paulo (USP). Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto (PCARP/BC)
• Defense date: 2013-12-05

Examining board members

Marcio Poletti Laurini; João Frois Caldeira; Claudio Ribeiro de Lucinda

• Advisor: Marcio Poletti Laurini

Abstract

Many models which have been recently used for derivatives pricing make restrictive assumptions about the volatility of the underlying object. Black-Scholes and Vasicek models, for instance, consider the volatility of the series as constant throughout time and maturity, an assumption that might not be the most appropriate for all cases. In this context, kernel regressions are important technics which have been researched recently. We discuss in this framework nonparametric modeling using the aforementioned technic and posterior option pricing using a Gaussian HJM model. We analyze different specifications for the nonparametric estimation of the volatility function using Monte Carlo simulations for the pricing of options on zero coupon bonds and conduct an empirical study using the proposed methodology for the pricing of options on the Interbank Deposit Index (IDI) in the Brazilian market. One of our main results is the good adjustment of the proposed methodology on the pricing of options on zero coupon bonds. (AU)

• FAPESP's process: 13/08360-6 - Analysis of Brazilian Interbank Deposit series: Volatility modelling and option pricing
• Grantee: Roberto Baltieri Mauad
• Support Opportunities: Scholarships in Brazil - Master