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    Please use this identifier to cite or link to this item: http://tkuir.lib.tku.edu.tw:8080/dspace/handle/987654321/106935

    Title: Pricing of the Cross-Currency Interest Rate Guarantee Embedded in Financial Contracts in a LIBOR Market Model
    Authors: Tsung-Yu Hsieh;Chi-Hsun Chou;Son-Nan Chen
    Keywords: Interest rate;guarantee;Cross-currency;LIBOR market model
    Date: 2015-12
    Issue Date: 2016-08-15
    Publisher: Kaizen Publications
    Abstract: We derive the pricing formulae for the financial contracts, such as guaranteed investment
    contracts (GICs), life insurance contracts, pension plans, and others, with the guaranteed
    minimum rate of return set relative to a LIBOR interest rate. Further, we analyze the
    guaranteed contracts in which the asset that provides the underlying return for the contract
    and the guaranteed interest rate are denominated in different currencies, which is a common
    practice. The guaranteed contracts with the above characteristics are called “cross-currency
    interest rate guaranteed contracts” (CIRGCs). To value CIRGCs, a cross-currency LIBOR
    market model is introduced. The LIBOR market model for a single-currency economy is
    extended to a cross-currency economy which incorporates the traded-asset prices and
    exchange rate processes into the model setting. The cross-currency LIBOR market model
    (CLMM) is suitable and applicable to pricing a variety of CIRGCs. The pricing formulas
    derived under the CLMM are more tractable and feasible for practice than those derived
    under the instantaneous short rate model or the HJM model. Four different types of CIRGCs
    are priced in this article. Calibration procedures are also discussed for practical
    implementation. In addition, Monte-Carlo simulation is provided to evaluate the accuracy of
    the theoretical prices.
    Relation: International Research Journal of Applied Finance 6(12), pp.761-795
    DOI: 10.0612/article-2
    Appears in Collections:[財務金融學系暨研究所] 期刊論文

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