Pricing of a European Call Option Under a Local Volatility Interbank Offered Rate Model

Show simple item record Chacha, Winnie Mbusiro 2018-02-12T11:03:34Z 2018-02-12T11:03:34Z 2018-02-12
dc.identifier.citation Chacha, 2014. en_US
dc.description Master of Science in Mathematics (Financial Option) en_US
dc.description.abstract Financial derivatives offer a great investment opportunity when accurately priced. Developing countries such as Kenya are yet to establish the mechanisms of trading in derivatives. This research seeks to demonstrate how advances in developed money markets can be reflected towards the establishment of derivatives markets in developing countries. To achieve this, the dynamics of the inter bank offered interest rates in developing markets and developed markets are compared. The two interbank offered rates are found to be similar under an appropriate martingale measure. A European caplet for the developed money market is priced using the local volatility interbank offered rate model. The accuracy of the local volatility interbank offered rate is found to be better when benchmarked against the industry accepted Black’s model. The local volatility model is used as it captures the volatility smiles more efficiently in one sweep. en_US
dc.description.sponsorship Dr.C. Njenga Mathematical Science Department, Strathmore University. Dr. W. Mahera Mathematical Science Department, University of Dar-es-Salaam. en_US
dc.language.iso en en_US
dc.publisher JKUAT-PAUSTI en_US
dc.subject European Call Option en_US
dc.subject Interbank en_US
dc.subject Local Volatility en_US
dc.subject Rate Model en_US
dc.title Pricing of a European Call Option Under a Local Volatility Interbank Offered Rate Model en_US
dc.type Thesis en_US

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