Risk measures and behaviors for bonds under stochastic interest rate models

Na Song*, Tak Kuen Siu, Farzad Alavi Fard, Wai Ki Ching, Eric S. Fung

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

This paper develops a model for measuring the risk inherent from trading a bond position under some important stochastic interest rate models. We employ the value at risk (VaR) and expected shortfall (ES) as proxies for the extreme risk inherent from trading a bond position. In particular, we concern ourselves with the average tail behavior of the real-world profit/loss distribution for a bond position. We investigate the risk behaviors of a bond position under some stochastic interest rate models including the Merton model, the Vasicek model, and the Cox-Ingersoll-Ross (CIR) model.

Original languageEnglish
Pages (from-to)204-217
Number of pages14
JournalMathematical and Computer Modelling
Volume56
Issue number9-10
DOIs
Publication statusPublished - Nov 2012

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