Heath-Jarrow-Morton framework

OData support
Dr. Lengyel László
Department of Automation and Applied Informatics

The fixed income market is a prominent sector of the global economy. The most common examples of financial intruments that yield a fixed income are bonds, and loans. These instruments are included in numerous types of investors' strategy, let it be a single family home, a corporate investment, or a government project. Fixed income products are present in every sector. One of the main advantages for investors is that these products generate stable, and predictable returns, unlike e. g. stocks. This makes fixed income products suitable for diversifying someones portfolio.

In order to engage in trading of these instruments, we have to know their price in the given economic context. If we know the exact values of the spot rate until the maturity of the product, its price can be calculated. In financial mathematics, there are numerous models that describe the evolution of the term structure of interest rates. I chose to implement the Ritchken \& Sankarasubramanian model.

Regarding my thesis, I have implemented a pricer library, which can be used for handling market specific data(yield curves, discount curves), defining financial instruments, and pricing them via Monte Carlo simulation based on the stochastic process that describes the spot rate. This library can handle four types of fixed income intruments: bonds, bond options, swaps, and swaptions.

In the course of my work, I also impelemented a graphical user interface for this library. Its functionality includes creating instruments, and pricing them with market data downloaded from the public financial database called Quandl. The application can also visualize the underlying stochastic process.

In my thesis, I describe the financial instruments which my application supports, introduce the matemathical and financial background for pricing these products, then I present the implemented application and evaluate the tests I made.


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