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The Valuation of Inflation-Protected Securities in Systematic Jump Risk¡GEvidence in American TIPS Market

Most of the derivative pricing models are developed in the jump diffusion models, and many literatures assume those jumps are diversifiable. However, we find many risk cannot be avoided through diversification. In this paper, we extend the Jarrow and Yildirim model to consider the existence of systematic jump risk in nominal interest rate, real interest rate and inflation rate to derive the no-arbitrage condition by using Esscher transformation. In addition, this study also derives the value of TIPS and TIPS European call option. Furthermore, we use the econometric theory to decompose TIPS market price volatility into a continuous component and a jump component. We find the jump component contribute most of the TIPS market price volatility. In addition, we also use the TIPS yield index to obtain the systematic jump component and systematic continuous component to find the systematic jump beta and the systematic continuous beta. The results show that the TIPS with shorter time to maturity are more vulnerable to systematic jump risk. In contrast, the individual TIPS with shorter time to maturity is more vulnerable to systematic jump. Finally, the sensitive analysis is conducted to detect the impacts of jumps risk on the value of TIPS European call option.

Identiferoai:union.ndltd.org:NSYSU/oai:NSYSU:etd-0618109-114907
Date18 June 2009
CreatorsLin, Yuan-fa
ContributorsMiao-Ling Chen, So-de Shyu, Ming-Chi Chen, Shih-kuei Lin
PublisherNSYSU
Source SetsNSYSU Electronic Thesis and Dissertation Archive
LanguageEnglish
Detected LanguageEnglish
Typetext
Formatapplication/pdf
Sourcehttp://etd.lib.nsysu.edu.tw/ETD-db/ETD-search/view_etd?URN=etd-0618109-114907
Rightscampus_withheld, Copyright information available at source archive

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