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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jbankfin.2010.01.019 Byline: Bong-Gyu Jang (a), Ji Hee Yoon (b) Keywords: Range note; Structured note; Hybrid note; Affine term structure; Jump diffusion; Equilibrium model Abstract: We derive analytic valuation formulas for range accrual notes and spread range accrual notes under an affine term structure model with jump risks. We show that the value of a range accrual note can be significantly affected by the choice of interest rate model and the arrival intensity of jump risks. We also show that misuse of the correlation between reference rates of a spread range accrual note may lead traders and risk managers to mispricing of the note. Author Affiliation: (a) Department of Industrial and Management Engineering, POSTECH, Republic of Korea (b) Department of Mathematical Science, KAIST, Republic of Korea Article History: Received 10 August 2009; Accepted 30 January 2010

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jbankfin.2009.06.012 Byline: Piergiorgio Alessandri (a), Mathias Drehmann (b) Keywords: Economic capital; Risk management; Credit risk; Interest rate risk; Asset and liability management Abstract: Banks often measure credit and interest rate risk in the banking book separately and then add the risk measures to determine economic capital. This approach misses complex interactions between the two risk types. We develop a framework where these risks are analysed jointly. Since banking book positions are generally not marked to market, our model is based on book value accounting. Our simulations show that interactions matter, and that ignoring them leads to risk overstatement. The magnitude of the errors depends on the structure of the balance sheet and on the repricing characteristics of assets and liabilities. Author Affiliation: (a) Bank of England, Threadneedle Street, London, EC2R 8AH, UK (b) Bank for International Settlements, Centralbahnplatz 2, 4002 Basel, Switzerland Article History: Received 12 March 2008; Accepted 16 June 2009

Two immunization measures for bond portfolios in the Spanish bond market are modeled and discussed in detail.

Stochastic volatility and GARCH models of option pricing models are investigated and presented. GARCH is the dominant pricing model for options.

The corporation as a nexus of risk taking is investigated and analyzed. Corporate management creates value through the risks it takes.

Hedging strategies of individual firms are affected by credit risk premiums. Concave strategies are used if the credit risk is large and convex if the risk is small. Linear strategies can be used in some cases, also.

Models of risk management at both the level of the individual firm and the global macro-economy are reviewed. Rationales for risk taking and their arrangements are researched.

A study of the examination of interest rate swaps from a number of countries is presented with emphasis on their common factors. Synthetic models of two of these factors are used to form a method for estimating value-at-risk.