Since its inception in the early 1980s, the global market for swaps has grown to over $3 trillion in notional principal outstanding, leading some regulators and others to express concern about risks posed for the financial system. Notional principal, however, is not a measure of the risks of swaps. As a result, it is important to both businesses using swaps and regulators to develop appropriate measures of these risks. For credit risk, for example, current replacement cost measures the credit exposure in the event of default today, but does not account for the possibility of default in the future. Additional measures are required. This thesis focuses on estimating the credit risk of swaps, accounting for both current and potential future exposure, and measuring the sensitivity or credit risk to changes in volatility. The model used is based on Monte Carlo techniques, drawing on Mark Ferron and George Handjinicolaou's article "Understanding Swap Credit Risk: The Simulation Approach". The model provides an estimate of the expected replacement cost of a swap, averaging across numerous interest rate scenarios. The sensitivity of the model's estimate of swap credit risk to different volatility assumptions is also determined and compared to the results of Ferron and Handjinicolaou. This analysis demonstrates that swap credit risk is highly sensitive to volatility. For example, starting with a 15% volatility level, a 100 basis point increase in volatility results in a 6.7% increase in the estimate of expected replacement cost. More generally, a given increase in volatility (e.g. from 20% to 25%) results in a proportional increase in replacement cost. / Master of Arts

No / Based on a reduced-form model of credit risk, we explore statistical arbitrage opportunities in the CDS spreads of North American companies. Specifically, we develop a trading strategy using the model to trade market-neutral portfolios while controlling for realistic transaction costs. Empirical results show that our arbitrage strategy is of significant economic value, and also cast doubt on the efficiency of the CDS market. The aggregate returns of the trading strategy are positively related to the square of market-wide credit and liquidity risks, indicating that the market is less efficient when it is more volatile.

Yes / Based on a reduced-form model of credit risk, we explore mispricing in the CDS spreads of North American companies and its economic content. Specifically, we develop a trading strategy using the model to trade out of sample market-neutral portfolios across the term structure of CDS contracts. Our empirical results show that the trading strategy exhibits abnormally large returns, confirming the existence and persistence of a mispricing. The aggregate returns of the trading strategy are positively related to the square of market-wide credit and liquidity risks, indicating that the mispricing is more pronounced when the market is more volatile. When implemented on the Markit data, the strategy shows significant economic value even after controlling for realistic transaction costs.

Le mémoire porte sur l'étude de l'écart de taux d'intérêt swap. Nous cherchons à déterminer ce qui fait varier cet écart de taux d'intérêt swap pour ensuite le prédire. Ce mémoire est important car, en terme absolu, le swap est le produit dérivé le plus négocié au monde. Les contrats swaps sont devenus des instruments incontournables pour gérer le risque de taux d'intérêt. Dans un monde financier complexe, il est fort pratique d'utiliser l'obligation gouvernementale la plus récente comme instrument sans risque. Étant donné la taille limitée de ce marché, le swap est un instrument de remplacement de choix pour les financiers. Son utilisation comme instrument de gestion du risque est donc fréquent. Toutefois, la prime de risque varie avec le temps. Il est donc important de savoir et comprendre ce qui fait varier cet écart pour aider à éliminer au maximum le risque de taux d'intérêt. Il sera démontré que la prime de liquidité inclus dans le marché des obligations gouvernementales et la prime de risque inclus dans le marché LIBOR sont les principaux déterminants de l'écart de taux swap. Un modèle sera construit pour nous permettre d'étudier les différents déterminants dans un contexte économétrique. Nos résultats nous permettent de dire que les risques ont une importance différente d'une période à l'autre.

券商和投資大眾越來越了解價格風險管理的重要性，但是對於波動度風險管理工具及其重要性的認知卻較為貧乏。論文探討的即是美歐新興的波動度管理工具：波動度交換契約(volatility swaps)和變異數交換契約(variance swaps)。藉著波動度交換契約，交易者就可以將所暴露的不確定風險轉換為固定的風險。 論文的焦點在於變異數交換契約(variance swaps)公平履約價的訂定。文章中所使用的評價方法是複製法(replictions strategy)，在唯一的假設條件下：股價的變動是連續的，用已知的金融商品複製成新的商品，而複製成本也就是變異數交換契約的公平價格。 在完美的市場中，我們用履約價從零到無限大的選擇權複製變異數交換契約，但是現實的情況下並不允許如此，改用有限範圍的選擇權複製其損益。故再加以討論當假設不成立：股價跳空時，以及用有限範圍履約價對複製策略的影響。 而波動度交換契約(volaility swaps)不管在理論上或是實務上的評價、避險的難度都遠高於變異數交換契約，在第七章節中，引用泰勒展開式和Heston的波動度模型，求得波動度交換契約公平履約價Kvol的評價公式。 一、中文部分： 1.、 寶來金融創新雙月刊 p31-p38 ‘波動性風險可以規避嗎？’ 陳凌鶴、林瑞瑤 2 、國際金融市場泛論與分析 陳松男著 3 、選擇權與期貨：衍生性商品 陳松男著 4 、期貨市場分析 朱浩民著 二、英文部分： 1. Black F, and M Scholes, 1973 ‘The pricing of options and Corporate liabilities” Journal of Political Economy 81, pages 637-659. 2. Carr P ,and D Madan, 1999 “Introducing the covariance swaps” Risk February, pages 47-51 3. Chriss N ,and W Morokoff, 1999 “Market risk for variance swaps” Risk October, pages 55-59 4. Derman E, 1999 “Regimes of volatility” Risk April, pages 55-59 5. Demeterfi K, E Derman, M Kamal and J Zou, 1999 “A guide to variance swaps”Risk June, pages 54-49 6. Dupire B, 1993 ” Model art risk” Risk September, pages 118-120 7. Andreas Grynbichler, Francis A, Longstaff, 1995, “Valuing futures and options on volatility”. Journal of Banking & Finance 20. 8. Carr, P., and D. Madan. “Towards a Theory of Volatility Trading.” In R. Jarrow, ed. Volatility: New Estimation Techniques for Pricing Derivatives. London: Risk Books, 1998, pp. 417-427. 9. Brenner, M., and D. Galai 1989, “New Financial Instruments for Hedging changes in Volatility”, Financial Analysis’s Journal , July-August, pp.61-65. 10 Demeterfi K., E. Derman, M. Kamal and J. Z. Zou, 1999”A guide to Volatility and Variance Swaps.” Journal of Derivatives, summer pp.9-32. 11. Derman, E. and I. Kani. “Riding on a Smile.” Risk. 7, No. 2 (1994), pp.32-39. ─. “Stochastic Implied Trees: Arbitrage Pricing with Stochastic Term and Strike Structure of Volatility.” International Journal of Theoretical and Applied Finance, Vol. 1, No. 1 (1998), pp. 61-110. 12 Neuberger, A. “The Log Contract: A New Instrument to Hedge Volatility.” Journal of Porfolio Management, Winter 1994, pages 74-80. 13 Neuberger, A. 1996. “The Log Contract and Other power Contracts “The Handbook of Exotic Options. Chicago: Irwin Professional Publishing, pages 220-212. 14 Oilver Brockaus and Douplas Long 2000 ‘Volatility Swaps Made Simple' Risk , January, pages 118-120 15 Jim Gatheral “Case studies in Financial course Notes” Spring 2000,Merrill Lynch 16 Bemd Rolfes and Eric Henn ,1999 “A vega nation.” Risk December, pages 26-28 17 Whaley R, 1993 “Derivatives on market volatility :hedging tools long overdue.” Journal of Derivatives, fall, pages 71-84 18 Cheryl L.Sulima , 2001 “Volatility and Variance Swaps” Capital Markets .News, Federal Reserve Bank of Chicago,March ,pages 1-4 19 Nina Mehta “Equity Vol Swaps Grow UP.”, Derivatives Strategy Magazine , July 1999 20 Dean Curnutt “The Art of the Variance swaps ” Derivatives Strategy Magazine , February 2000

This thesis consists of extensions of results on a perpetual American swaption problem. Companies routinely plan to swap uncertain benefits with uncertain costs in the future for their own benefits. Our work explores the choice of timing policies associated with the swap in the form of an optimal stopping problem. In this thesis, we have shown that Hu, Oksendal's (1998) condition given in their paper to guarantee that the optimal stopping time is a.s. finite is in fact both a necessary and sufficient condition. We have extended the solution to the problem from a region in the parameter space where optimal stopping times are a.s. finite to a region where optimal stopping times are non-a.s. finite, and have successfully calculated the probability of never stopping in this latter region. We have identified the joint distribution for stopping times and stopping locations in both the a.s. and non-a.s. finite stopping cases. We have also come up with an integral formula for the inner product of a generalized hyperbolic distribution with the Cauchy distribution. Also, we have applied our results to a back-end forestry harvesting model where stochastic costs are assumed to exponentiate upwards to infinity through time. / Graduation date: 2013

Cette thèse de doctorat composée de trois chapitres contribue au développement de la problématique sur la sélection de modèle de volatilité de type GARCH. Le premier chapitre propose une étude de simulation sur la sélection de modèles dans le cadre spécifique des modèles à changement de régimes. On propose des expériences de simulation permettant de mettre en évidence l'inefficacité des critères de sélection usuels dans des cas particuliers, ce qui peut conduire à des erreurs de spécification lors du choix de modèle. Le deuxième chapitre propose un test du multiplicateur de Lagrange de mauvaise spécification dans les modèles GARCH univariés. L'hypothèse nulle admet que le processus générateur des données est un modèle GARCH linéaire tandis que sous l'hypothèse alternative il correspond à une forme fonctionnelle inconnue qui est linéarisée à l’aide d’un développement de Taylor. On illustre le test dans une application empirique sur les taux de change. Le dernier chapitre étudie l'impact du prix du pétrole sur les spreads de Credit Default Swaps souverains de deux pays exportateurs de pétrole: le Vénézuela et la Russie. Utilisant des données récentes, nous trouvons que les rendements du prix du pétrole impactent les spread de CDS souverains du Vénézuela directement alors que cela passe par le canal du taux de change pour la Russie. Ce chapitre emploie des méthodes statistiques avancées, notamment l'utilisation de modèles à changement de régimes Markoviens. Finalement, l'appendice propose le manuel de la toolbox MSGtool (Matlab) qui propose une collection de fonctions pour l'étude des modèles à changement de régimes Markoviens. La toolbox est très user-friendly. / This Ph.D. thesis composed by three chapters contributes to the development of model selection in GARCH-type models.The first chapter investigates whether the most common selection criteria lead to choose the right specification in a regime switching framework. We propose simulation experiments which reveal the inefficiency of some selection criteria in particular cases which lead to misspecification. Depending on the Data Generating Process used in the experiments, great care is needed when choosing a criterion.In the second chapter, a misspecication test for GARCH-type models is presented. We propose a Lagrange Multiplier type test based on a Taylor expansion to distinguish between (G)ARCH models and unknown nonlinear GARCH-type models. This test can be seen as a general misspecication test. We investigate the size and the power of this test through Monte Carlo experiments. We show the usefulness of our test with an illustrative empirical example based on daily exchange rate returns.In the third chapter, we study the impact of oil price returns on sovereign Credit Default Swaps (CDS) spreads for two major oil producers, Russia and Venezuela. Using daily spreads from 2008 to 2015, we find that crude oil price returns are a critical determinant of Venezuela CDS spreads changes, but does not explain significantly Russian CDS spreads. Indeed, oil prices seem to impact Russian CDS spreads through the exchange rates canal. Finally, we propose as an appendix the manual of the MSGtool, a MATLAB toolbox, which provides a collection of functions for the simulation and estimation of a large variety of Markov Switching GARCH (MSG) models.

Le phénomène de contagion, les hypothèses d'efficience et les transferts de volatilité sont parmi les théories économiques les plus importantes, car elles fournissent une vision globale sur la stabilité financière. Or, elles restent les moins comprises depuis les récentes crises récentes. Ainsi, cette thèse propose de fournir aux régulateurs économiques, aux investisseurs et aux acteurs du marché financier une vision actualisée du comportement dynamique des marchés mondiaux des Credit Default Swaps (CDS): efficacité informationnelle, interaction avec d'autres marchés financiers internationaux et exposition au risque systémique. La dynamique en constante mutation de ces marchés associée à l'évolution constante des politiques de réglementation a suscité un enthousiasme mondial pour l'étude comportementale des marchés des CDS, auquel nous contribuons à travers cinq essais interconnectés. Nous discutons, dans le premier essai, les faits stylisés des données des CDS souverains à travers l'estimation de 9 modèles de type GARCH. Ce chapitre compare les performances de plusieurs modèles prédictifs de volatilité linéaire et non linéaire et prenant en compte différentes caractéristiques financières des séries statistiques. L'application de ces modèles aux spreads de CDS de 38 pays révèle que le pouvoir prédictif de ces modèles dépend de leur capacité à capturer les faits stylisés des CDS souverains pendant l'estimation du processus de la variance. En effet, les modèles GARCH fractionnellement intégrés surpassent les modèles GARCH de base en termes de prévision, en raison de la flexibilité accordée au degré de persistance des chocs de variance. Ces résultats sont utilisés pour modéliser conjointement les rendements et la volatilité des spreads de CDS dans l'ensemble des prochains essais. Le deuxième essai examine également les caractéristiques financières des marchés internationaux des CDS souverains, en donnant de nouvelles preuves sur leurs degrés d'efficacité. En utilisant un nouveau cadre économétrique basé sur une estimation du modèle VECM-FIGARCH en trois étapes, nous montrons que les informations contenues dans les spreads de CDS et les rendements des obligations sous-jacentes ne sont pas toujours reflétées instantanément et correctement dans le niveau du risque souverain. Les résultats révèlent l'existence d'opportunités d'arbitrage avec un rejet partiel de l'hypothèse de marche au hasard dans plusieurs des 37 pays étudiés [etc...] / Contagion phenomenon, efficiency hypothesis and spillover effects are amongst the most important economic theories as they provide an overall vision of the financial stability, yet the least understood in the aftermath of the recent crises. This thesis proposes to provide policy makers, investors and broadly market participants with an updated outlook of the dynamic behavior of the global sovereign Credit Default Swaps (CDS) markets: informational efficiency, interaction with other international financial markets and systemic-risk exposure. The steadily changing dynamics of these markets combined with the constantly evolving regulatory policies have led to a shared worldwide enthusiasm regarding the behavioral study of CDS markets, in which we contribute through five interconnected essays. We first discuss, in the first essay, the statistical characteristics of the sovereign CDS data, through the estimation of 9 GARCH-class models. This chapter compares the predictability performances of several linear and non-linear volatility models taking into consideration different financial stylized facts. Application on CDS spreads of 38 countries reveals that the forecasting power of these models depends on their ability to capture sovereign CDS features while estimating the variance process. Yet, the fractionally-integrated models outperform the basic GARCH-class models due to the allowed flexibility regarding the persistence degree of the variance shocks. These results are used to jointly model returns and volatility of CDS spreads in the forthcoming essays.The second essay also investigates the financial characteristics of the international sovereign CDS markets, by giving new evidences on their efficiency degrees. Using a new framework based on a 3-step estimation of a VECM-FIGARCH model, we show that information contained in CDS spreads and bond yields are not always instantaneously and properly reflected in the current sovereign risk level. Results reveal the existence of arbitrage opportunities with a partial rejection of the randomness hypothesis in some of the 37 studied countries. While the previous essay used the conditional expectation of CDS spreads to study the market behavior, the next essays rather focus on the properties of the variance and covariance. The predictability of sovereign CDS volatility, based on the information contained in some country-specific and global macroeconomic factors, is investigated in the third chapter [etc...]

The world is getting more and more globalized and more countries choose to make business abroad today compared to only ten years ago. To establish abroad involves a lot of risks for a company and one important risk a company need to pay attention to is thecurrency risk. A corporation can be exposed to different kinds of currency risks and there is a lot of derivates to use when hedging against those risks. Which strategy or method a company uses is regulated in its financial policy, which constitutes an important part in the work against currency exposure. The main purpose of this dissertation is to investigate which currency hedging methods and derivates Swedish export companies are using when trading on the international market. Another part of the purpose is to explore if there is a difference between large and small companies when it comes to currency hedging and if there is, why there is a difference. To get the answers of the purpose a qualitative study were used and three intervjues with three companies of different sizes in the energy industry were made. The study also included one interview with an expert in the area of currency hedging. Together with theory and earlier studies the dissertation came to a conclusion. The conclusion of this study was that companies are using different derivates to protect themselves against currency risks and there is a difference between small and large companies in the hedging, mainly in the number of different derivates. Another conclusion that can be drawn was that warrants and futures is the most common derivates among swedish export companies which also is supported by theory and earlier studies. / Världen blir allt mer globaliserad och fler och fler länder väljer att röra sig utanför de nationella gränserna och göra affärer internationellt. Att etablera sig utomlands innebär många risker för ett företag och en viktig risk ett företag måste beakta vid handel internationellt är valutarisken. Ett företag kan bli exponerade mot olika typer av valutarisker och det finns flera instrument att använda sig av för att skydda sig mot dessa. Vilken metod ett företag använder sig av finns reglerat i företagens finanspolicy, vilken utgör en viktig del i arbetet mot valutaexponering. Syftet med uppsatsen är att undersöka vilka valutasäkringsmetoder och instrument svenska exportföretag använder sig av vidinternationell handel för att säkra sig mot valutarisker, samt undersöka om det skiljer sig i hur företag av olika storlek hanterar dessa risker. För att besvara vår frågeställning genomfördes forskningen genom en kvalitativ studie där tre stycken energiföretaget av olika storlek intervjuades. I studien intervjuades även en expert inom området och genom en jämförelse av empirin samt tidigare forskning kunde det dras en slutsats. Undersökningens slutsats var att företagen använder sig av flera olika metoder och instrument vid hanteringen av valutarisker. Den typ avvalutarisk de främst är utsatta för är transaktionsexponeringar på samtliga företag. Studien visade också att det skiljde sig i hur företagen av olika storlek hanterar dessa risker, främst i form av antalet instrument företagen använde sig av. En annan slutsats som kunde göras med en jämförelse av tidigare teori är att swappar och terminer är vanliga instrument medan optioner är ett mindre använt instrument för företag vid valutasäkring.

The aim of the thesis is to investigate determinants of corporate bond and CDS contract pricing using a sample of 34 European companies over the period 2008-2014. This work extends existing literature by studying differences in determinants of bond and CDS spreads not only for different time periods, but also for different sets of companies grouped by geography, industry, and profitability. The results reveal that bond and CDS spreads are generally influenced by similar factors, with a company's credit rating being the most influential factor. Nevertheless, the investigation of time-specific estimations suggests that firm-specific factors play a more significant role in pricing bonds, whereas market factors have a higher impact on CDS spreads. The analysis of the subsamples reveals substantial differences in regression results for individual groups of companies, which suggests a presence of idiosyncratic factors. Our conclusion is that the pricing of bonds and CDS contracts is not only time-dependent, but also unique for different groups of companies, which implies a necessity to use different pricing models for individual contracts.