Numerix Quantitative Leadership Series: Advances in Tenor Basis Modeling: Boundedness, Specification & Calibration

The behavior of tenor basis spreads is of crucial importance to CVA for tenor basis swaps. A pervasive feature of such spreads is that they are typically positive, suggesting a natural lower bound.

On Thursday, October 10th at 10:00am EDT, Numerix Director of Quantitative Research, Andrew McClelland Ph.D., presented new research. He introduced a lower-bounded multi-curve Cheyette model, with lower bounds owing to level dependence in spread volatilities and derives swaption pricing formulae and other quantities relevant for practical use. Issues arising out of the calibration of multi-curve models were discussed and a calibration strategy was formalized.

Dr. McClelland covered:

  • Tenor basis in XVA and its impact on calibrated discount-rate volatilities
  • A Cheyette-style multi-curve model with lower-bounded tenor spreads
  • A complicated HJM-style drift condition on the multi-curve model
  • Calibrating to historical basis-spread behavior (jointly with swaptions)
  • The impact of benchmark rate reforms on multi-curve modeling and calibration

 

 

Featured Speakers:

Andrew McClelland, Ph.D., Director, Quantitative Research, Numerix
Andrew McClelland's work at Numerix focuses on counterparty credit risk issues including valuation adjustments and counterparty exposure production for structured products. He also works on numerical methods for efficient production of risk profiles under real-world measures.

Andrew received his Ph.D. in finance at the Queensland University of Technology in financial econometrics. His research involved markets exhibiting crash feedback, option pricing, and parameter estimation using particle filtering methods. His work has been published in the Journal of Banking and Finance, the Journal of Econometrics, and the Journal of Business and Economic Statistics.

JamesJockleModerator: James Jockle, Chief Marketing Officer, Numerix
Mr. Jockle leads the company's global marketing efforts, spanning a diverse set of solutions and audiences. He oversees integrated marketing communications to customers in the largest global financial markets and to the Numerix partner network through the company's branding, electronic marketing, research, events, public relations, advertising and relationship marketing. Prior to joining Numerix, he served as Managing Director of Global Marketing and Communications for Fitch Ratings. During his tenure at Fitch, Mr. Jockle built the firm’s public relations program, oversaw investor relations and led marketing and communications plans for several acquisitions. He also oversaw the brand development of a new company dedicated to the enhancement of credit derivative and structured-credit ratings, products and services. Prior to Fitch, Mr. Jockle was a member of the communications team at Moody's Investors Service.

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on-demand webinar

MVA: How to Forecast Initial Margin w/ Andy McClelland