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  • June 17, 2014: IAQF Seminar

June 17, 2014: IAQF Seminar

  • 17 Jun 2014
  • 5:45 PM (EDT)
  • NYU Kimmel Center, Room 914, 60 Washington Square South, New York, NY

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Neither `Normal’ nor `Lognormal’ Modeling: Interest Rates Across all Regimes
A Talk by Attilio Meucci

Abstract
We present the inverse-call transformation, a unified methodology to model interest rates homogeneously across different regimes, from very low, to very high. Then, we apply the inverse-call transformation methodology to risk management and bond pricing. For risk management, we use the inverse-call transformation to project the distribution of the whole term structure of interest rates to arbitrary horizons. With the inverse-call transformation projection, rates display a reasonable distribution even after several years, unlike with the “normal” projection, where rates diffuse into negative values, or with the “log-normal” projection, where rates display an explosive behavior. For risk management, the inverse-call transformation can be used to model not only interest rate risk, but also risks due to other positive variables, such as implied volatility surfaces. For bond pricing, we use the inverse-call transformation to generalize the Vasicek pricing model, all while being almost as parsimonious.

Biography
Attilio Meucci,
Chief Risk Officer, KKR, and Founder, SYMMYS


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