PhD Defense Henrik Thybo Dam

Title: Rational Models for Inflation-Linked Derivatives

Abstract: 

This thesis is about the modelling of rational-like pricing kernels used for inflation-linked derivatives pricing. The thesis consists of three papers. The first introduces the rational pricing kernel framework with particular care to all market idiosyncrasies. There we compare to existing models, develop pricing formulas, investigate measure changes and calibrate specific models based on processes with independent increments.

In the second chapter we investigate the pricing of exotic inflation-linked derivatives. We develop pricing formulas for the LPI swap and the BTP Italia bond where we also provide error control under various assumptions. We also show how to generalise the model framework to multiple economies and how to price the most important multi-index products.

Finally in the third chapter we generalise in several directions allowing general semimartingale drivers opening up for using non-exponential processes. Most important we consider an alternative rational specification which then allows to base the nominal market on well-known models, multifactor drivers with same tractability and gives semi-closed form swaption prices. A new result is derived to get Year-on- year swaps and caplet prices when the driver is a CIR process which is based on a characteristic function newly obtained in Grasselli (2017).

 

Supervisor: Prof. David Glavind Skovmand, MATH, University of Copenhagen

Assessment Committee:

Associate Professor. (Chairman), Jesper Lund Pedersen, MATH, University of Copenhagen

Professor, Frank Seifried, University of Trier

Associate Professor, Linda Sandris Hansen, Copenhagen Business School