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affine model, 215,216annuity, 11, 24,71,98, 114, 125,250,268,269, 270,271,272,275,276,356, 357,358,360arbitrageopportunities, 38, 39,42,43,44,45, 85, 86,91,236,438,439,462price, 39,43,44, 51, 93,94, 267pricing, 37, 39,40,42,45,48,49, 51, 53, 61, 62, 63, 66, 69,89,90, 93, 97,98, 101, 154,279strategies, 25, 37,39,45,49,66,341arbitrage models, 40, 62,63, 66,67,71,75asset swaps, 70, 82, 331assetniability management, 394,453ATM (at the money), 54, 68, 132,187, 190,201, 280,289,290,301,306,307, 308,309,316,317,318,319,374,396
basis swap, 266, 395Bermudan swaption, 53,203,251,252,290,293, 307,308,310,311,318,319bidaskspread, 11,29, 30, 38, 39,44,49,50,51,54,59, 64,69,90,117,460bidask spread, 11,29,30,38,39,44,49,50,51,54,59,64,69,90,117,460binomialeconomy, 92,93model, 92binomial economy, 92, 93Black volatility, 51, 131, 133, 148,150,262,271,278,287Black-Scholes model, 60, 124, 142,350Black-Scholes PDE, 116Brownianbridge, 164, 165, 166, 167,197, 198,242, 279, 336,382
492
motion, 100, 102, 103, 105, 106,111, 139, 140, 154, 156, 159,164, 165, 167, 168, 175, 178,180, 182, 213,219,220, 221,222,226,231,235,237,238,243,246,253,259,261,262,270,271,277,283,284,288,297,298,299, 300, 313,314,320, 323, 324, 341, 343, 344,358,361,364,443buy-and-hold trading strategy, 42
callable bond, 72,73,74, 308, 396,454capital structure arbitrage, 84caplet, 250, 258,263,264,265,269,290,291,300,301,307CDS (credit default swap), 11,266,373,379collateralagreement, 25, 30, 31,366,368,369collateral or margin agreement, 369completing the market, 61constant maturity swap, 395convexity adjustment, 134, 139,142,265,333,346,408,410correlated default, 342,343,344,345correlation skew, 40, 5 1, 343,350counterparty credit risk, 10, 11, 12,13, 14, 17,21, 27,28, 30,32,33,34, 35, 36,38,39,45,47,48, 50,55,59,72,73,74,75, 82, 84, 85,89,90, 101,208,266, 269,281,282, 327, 328, 334, 335, 345,348, 362,363,364,366,367,370,378,380,382,383,384modeling and pricing of, 36,328,348,363,364,380,382
Index
creditbenefit, 11, 13, 14, 15, 16, 17,19, 21, 22,23,24, 25, 26, 27,368,369,375,384charge, 10, 11, 12, 13, 14, 15,16, 17,21, 22, 23,25,26,27,28,29, 35,39,48,73, 155,199,204,327,351,352,359,365,366,369, 372,373,374,375,377,384,385contingency agreement, 30,3 1default swaps, 11, 266, 379enhancement strategies, 30, 39exposures, 3 1gain, 384loss, 29,30, 32, 33, 34, 83, 384quality, 11, 13, 14, 15, 16, 22,23,25, 28,29, 31, 33, 34,46,47,48, 81, 83, 86, 204,280,379,384risks, 14, 27, 30, 35, 47, 327,328,370,383,392,394spread, 15, 16, 24, 25, 28, 29,34, 35,40, 59, 73, 74, 82