Valuation and Hedging of Correlation Swaps

Title

Valuation and Hedging of Correlation Swaps

 Author

Draijer, Mats (TU Delft Electrical Engineering, Mathematics and Computer Science)

Contributor

Oosterlee, Kees (mentor)
Cirillo, Pasquale (mentor)
van Elderen, Emiel (graduation committee)
Ruszel, Wioletta (graduation committee)

Degree granting institution

Delft University of Technology

 Date

2017-09-22

 Abstract

The aim of this thesis is to provide a formula for the value of a correlation swap. To get to this formula, a model from an article by Bossu is inspected and its resulting expression for fair the fair value of a correlation swap is simulated. The Jacobi process will be defined and two discretization schemes will be compared for it. Methods are discussed to make simulations of the Jacobi process as accurate as possible, making sure it crosses its boundaries -1 and 1 as little as possible. It will be shown that a correlation swap can be hedged by dynamically trading variance dispersion trades. The main result of the thesis is a partial differential equation for the fair value of a correlation swap. It will be shown that the expression for the value of a correlation swap obtained by Bossu's model satisfies this partial differential equation.

 Subject

Correlation
Swaps
Hedging
Option Pricing
Correlation Swaps

 To reference this document use:

http://resolver.tudelft.nl/uuid:a43d3aa4-e824-4145-aa18-3759be4f218a

 Part of collection

Student theses

 Document type

bachelor thesis

 Rights

© 2017 Mats Draijer
Files
PDF Valuation_and_Hedging_of_ ... _Swaps.pdf 1023.26 KB
Close viewer