DOCSLIB.ORG

Banca Popolare Dell’Alto Adige Joint-Stock Company

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Banca Popolare Dell’Alto Adige Joint-Stock Company 2016 FINANCIAL STATEMENTS 1 Banca Popolare dell’Alto Adige Joint-stock company Registered office and head office: Via del Macello, 55 – I-39100 Bolzano Share Capital as at 31 December 2016: Euro 199,439,716 fully paid up Tax code, VAT number and member of the Business Register of Bolzano no. 00129730214 The bank adheres to the inter-bank deposit protection fund and the national guarantee fund ABI 05856.0 www.bancapopolare.it – www.volksbank.it 2 3 „Wir arbeiten 2017 konzentriert daran, unseren Strategieplan weiter umzusetzen, die Kosten zu senken, die Effizienz und Rentabilität der Bank zu erhöhen und die Digitalisierung voranzutreiben. Auch als AG halten wir an unserem Geschäftsmodell einer tief verankerten Regionalbank in Südtirol und im Nordosten Italiens fest.“ Otmar Michaeler Volksbank-Präsident 4 DIE VOLKSBANK HAT EIN HERAUSFORDERNDES JAHR 2016 HINTER SICH. Wir haben vieles umgesetzt, aber unser hoch gestecktes Renditeziel konnten wir nicht erreichen. Für 2017 haben wir uns vorgenommen, unsere Projekte und Ziele mit noch mehr Ehrgeiz zu verfolgen und die Rentabilität der Bank deutlich zu erhöhen. 2016 wird als das Jahr der Umwandlung in eine Aktien- Beziehungen und wollen auch in Zukunft Kredite für Familien und gesellschaft in die Geschichte der Volksbank eingehen. kleine sowie mittlere Unternehmen im Einzugsgebiet vergeben. Diese vom Gesetzgeber aufgelegte Herausforderung haben Unser vorrangiges Ziel ist es, beste Lösungen für unsere die Mitglieder im Rahmen der Mitgliederversammlung im gegenwärtig fast 60.000 Mitglieder und über 260.000 Kunden November mit einer überwältigenden Mehrheit von 97,5 Prozent zu finden. angenommen. Gleichzeitig haben wir die Weichen gestellt, um All dies wird uns in die Lage versetzen, in Zukunft wieder auch als AG eine erfolgreiche und tief verankerte Regionalbank Dividenden auszuschütten. Angesichts des bescheidenen zu sein. Gewinns des abgelaufenen Geschäftsjahres schlägt der „Wir arbeiten 2017 konzentriert daran, unseren Strategieplan Die Volksbank hat 2016 mit einem bescheidenen Gewinn von 7,7 Verwaltungsrat der Mitgliederversammlung vor, keine Dividende weiter umzusetzen, die Kosten zu senken, die Effizienz und Mio. Euro abgeschlossen. Zur Halbjahresbilanz hatten wir Ihnen auszuzahlen und den Gewinn für die Stärkung des Eigenkapitals die Gründe für die zusätzlichen Wertberichtigungen auf Kredite zu nutzen. Rentabilität der Bank zu erhöhen und die Digitalisierung dargestellt, die zum Halbjahres-Verlust geführt haben und Ihnen Zum heurigen 25-Jahr-Jubiläum der Fusion zwischen den voranzutreiben. Auch als AG halten wir an unserem mitgeteilt, dass wir für das zweite Halbjahr von einer positiven Volksbanken von Bozen und Brixen kann unsere Bank auf ebenso Geschäftsmodell einer tief verankerten Regionalbank in Geschäftsentwicklung ausgehen. Das ist so eingetroffen. Wir viele Jahre Gewinn und Solidität zurückblicken. Mit 860 Mio. sind zwar froh, dass wir unser Versprechen gehalten haben, Euro war unsere Eigenkapitaldecke noch nie so stark wie heute. Südtirol und im Nordosten Italiens fest.“ dass wir im zweiten Halbjahr deutlich aufholen konnten und für Mit fast 60.000 Mitgliedern sind wir im gesamten Einzugsgebiet Otmar Michaeler 2016 einen Gewinn ausweisen können – aber zufrieden sind wir von Bozen bis Venedig stark verankert. Volksbank-Präsident damit nicht. Unser Anspruch ist es, aus der Volksbank eine noch stärkere Danke für Ihre Unterstützung und Ihr Vertrauen. und renditekräftigere Bank zu machen. Wir haben uns vorgenommen, in den folgenden Jahren die Erträge deutlich zu steigern und gleichzeitig die Kosten zu senken. Unser Ihr Strategieplan 2017–2021 sieht vor, dass wir die Effizienz der Bank erhöhen und die Digitalisierung vorantreiben – und zwar so, dass viele digitale Produkte und Dienstleistungen für unsere Kunden noch schneller, einfacher und vor allem jederzeit Otmar Michaeler verfügbar sind. Natürlich setzen wir weiterhin auf persönliche Präsident des Verwaltungsrates 4 – 5 5 “In 2017, we will vigorously endeavour to achieve the business plan and contain costs in order to improve the Bank’s efficiency and profitability, focusing on digitalisation. The transformation to a joint-stock company will not result in changes to our business model. We will remain deeply rooted as the regional bank of north-eastern Italy.” Otmar Michaeler Chairman of the Board of Directors 6 FOR BANCA POPOLARE · VOLKSBANK, 2016 WAS A CHALLENGING YEAR. Numerous important projects were completed, but, unfortunately, the ambitious objective related to profitability was not achieved. In 2017, we will re-commit to implement our projects, pursue our objectives with renewed determination, and markedly improve the Bank’s profitability. Dear Shareholders, 2016 will become part of the history of digital products and services are available at any time, more Volksbank as the year of transformation into a joint-stock quickly and easily. Naturally, we will continue to focus on personal company. Shareholders voted favourably last November for this relationships and in disbursing loans to families and to small and challenging reorganisation, decided by the Italian legislature, by medium enterprises in the region. Our primary objective is to find an overwhelming majority of 97.5%. At the same time, we laid the best possible solutions for our nearly 60,000 shareholders the groundwork for success as a joint-stock company and to and more than 260,000 customers. remain a bank that has strong roots in the community. This will allow us to return to dividend distributions in the future. Volksbank closed 2016 with a modest profit of Euro 7.7 million. Given the modest profit for 2016, the Board of Directors proposes “In 2017, we will vigorously endeavour to achieve the In the six-month report, we explained the reasons for the to shareholders to not distribute any dividends and to allocate business plan and contain costs in order to improve the increased write-downs, specifying that, for the second half of the the profit achieved to strengthen capital. Upon the twenty-fifth year, forecasts indicated a positive performance for the financial anniversary of the merger of the cooperative banks of Bolzano Bank’s efficiency and profitability, focusing on digitalisation. statements. And this was achieved. We are very happy to have and Bressanone, our Bank can look back at twenty-five years The transformation to a joint-stock company will not result kept our promises to you in the second half, with a net recovery of profit and stability. With Euro 860 million in net assets, the in changes to our business model. We will remain deeply and profit for the 2016 financial statements. But we certainly Bank has never been as strong as it is today, and thanks to our cannot be satisfied. nearly 60,000 shareholders, it is well established throughout our rooted as the regional bank of north-eastern Italy.” Our primary goal is to make Volksbank ever stronger and more reference market, from Bolzano to Venice. Otmar Michaeler profitable. We have re-committed to pursuing a sizable increase Chairman of the Board of Directors in revenue while reducing costs in the years to come. Our We appreciate your support and trust 2017-2021 business plan envisages the Bank becoming more efficient, with a push toward digitalisation, so that numerous Mr. Otmar Michaeler Chairman of the Board of Directors 2 – 3 7 2016 ANNUAL FINANCIAL REPORT 9 CONTENTS DIRECTORS’ REPORT ......................................................................................................................................... 25 1.1 Financial Environment and Markets ............................................................................................................... 27 1.2 The Banking System ...................................................................................................................................... 30 1.3 Long-Term Trends ......................................................................................................................................... 34 1.4 Competitive Position of Banca Popolare - Volksbank ................................................................................... 36 1.5 The Business Plan ........................................................................................................................................ 37 1.6 Significant Events during the Year ................................................................................................................ 39 1.7 Results of Operations ................................................................................................................................... 48 1.8 Rating ............................................................................................................................................................. 61 1.9 Corporate Governance and Remuneration Policies ...................................................................................... 63 1.10 The Distribution Model ................................................................................................................................ 69 1.11 Banking Activities ........................................................................................................................................ 74 1.12 Governance Activities ................................................................................................................................. 77 1.13 Mutual Nature and Initiatives for Shareholders ..........................................................................................
Load more

Recommended publications
  • Martingale Methods in Financial Modelling
    Marek Musiela Marek Rutkowski Martingale Methods in Financial Modelling Second Edition Springer Table of Contents Preface to the First Edition V Preface to the Second Edition VII Part I. Spot and Futures Markets 1. An Introduction to Financial Derivatives 3 1.1 Options 3 1.2 Futures Contracts and Options 6 1.3 Forward Contracts 7 1.4 Call and Put Spot Options 8 1.4.1 One-period Spot Market 10 1.4.2 Replicating Portfolios 11 1.4.3 Maxtingale Measure for a Spot Market 12 1.4.4 Absence of Arbitrage 14 1.4.5 Optimality of Replication 15 1.4.6 Put Option 18 1.5 Futures Call and Put Options 19 1.5.1 Futures Contracts and Futures Prices 20 1.5.2 One-period Futures Market 20 1.5.3 Maxtingale Measure for a Futures Market 22 1.5.4 Absence of Arbitrage 22 1.5.5 One-period Spot/Futures Market 24 1.6 Forward Contracts 25 1.6.1 Forward Price 25 1.7 Options of American Style 27 1.8 Universal No-arbitrage Inequalities 32 2. Discrete-time Security Markets 35 2.1 The Cox-Ross-Rubinstein Model 36 2.1.1 Binomial Lattice for the Stock Price 36 2.1.2 Recursive Pricing Procedure 38 2.1.3 CRR Option Pricing Formula 43 X Table of Contents 2.2 Martingale Properties of the CRR Model 46 2.2.1 Martingale Measures 47 2.2.2 Risk-neutral Valuation Formula 50 2.3 The Black-Scholes Option Pricing Formula 51 2.4 Valuation of American Options 56 2.4.1 American Call Options 56 2.4.2 American Put Options 58 2.4.3 American Claim 60 2.5 Options on a Dividend-paying Stock 61 2.6 Finite Spot Markets 63 2.6.1 Self-financing Trading Strategies 63 2.6.2 Arbitrage Opportunities 65 2.6.3 Arbitrage Price 66 2.6.4 Risk-neutral Valuation Formula 67 2.6.5 Price Systems 70 2.6.6 Completeness of a Finite Market 73 2.6.7 Change of a Numeraire 74 2.7 Finite Futures Markets 75 2.7.1 Self-financing Futures Strategies 75 2.7.2 Martingale Measures for a Futures Market 77 2.7.3 Risk-neutral Valuation Formula 79 2.8 Futures Prices Versus Forward Prices 79 2.9 Discrete-time Models with Infinite State Space 82 3.
    [Show full text]
  • Interest Rate Options
    Interest Rate Options Saurav Sen April 2001 Contents 1. Caps and Floors 2 1.1. Defintions . 2 1.2. Plain Vanilla Caps . 2 1.2.1. Caplets . 3 1.2.2. Caps . 4 1.2.3. Bootstrapping the Forward Volatility Curve . 4 1.2.4. Caplet as a Put Option on a Zero-Coupon Bond . 5 1.2.5. Hedging Caps . 6 1.3. Floors . 7 1.3.1. Pricing and Hedging . 7 1.3.2. Put-Call Parity . 7 1.3.3. At-the-money (ATM) Caps and Floors . 7 1.4. Digital Caps . 8 1.4.1. Pricing . 8 1.4.2. Hedging . 8 1.5. Other Exotic Caps and Floors . 9 1.5.1. Knock-In Caps . 9 1.5.2. LIBOR Reset Caps . 9 1.5.3. Auto Caps . 9 1.5.4. Chooser Caps . 9 1.5.5. CMS Caps and Floors . 9 2. Swap Options 10 2.1. Swaps: A Brief Review of Essentials . 10 2.2. Swaptions . 11 2.2.1. Definitions . 11 2.2.2. Payoff Structure . 11 2.2.3. Pricing . 12 2.2.4. Put-Call Parity and Moneyness for Swaptions . 13 2.2.5. Hedging . 13 2.3. Constant Maturity Swaps . 13 2.3.1. Definition . 13 2.3.2. Pricing . 14 1 2.3.3. Approximate CMS Convexity Correction . 14 2.3.4. Pricing (continued) . 15 2.3.5. CMS Summary . 15 2.4. Other Swap Options . 16 2.4.1. LIBOR in Arrears Swaps . 16 2.4.2. Bermudan Swaptions . 16 2.4.3. Hybrid Structures . 17 Appendix: The Black Model 17 A.1.
    [Show full text]
  • An Empirical Investigation of the Black- Scholes Call
    International Journal of BRIC Business Research (IJBBR) Volume 6, Number 2, May 2017 AN EMPIRICAL INVESTIGATION OF THE BLACK - SCHOLES CALL OPTION PRICING MODEL WITH REFERENCE TO NSE Rajesh Kumar 1 and Rachna Agrawal 2 1Research Scholar, Department of Management Studies 2Associate Professor, Department of Management Studies YMCA University of Science and Technology, Faridabad, Haryana, India ABSTRACT This paper investigates the efficiency of Black-Scholes model used for valuation of call option contracts written on Eight Indian stocks quoted on NSE. It has been generally observed that the B & S Model misprices options considerably on several occasions and the volatilities are ‘high for options which are highly overpriced. Mispriced worsen with the increased in volatility of the underlying stocks. In most of cases options are also highly underpriced by the model. In this research paper, the theoretical options prices of Nifty stock call options are calculated under the B & S Model. These theoretical prices are compared with the actual quoted prices in the market to gauge the pricing accuracy. KEYWORDS Black-Scholes Model, standard deviation, Mean Error, Root Mean Squared Error, Thiel’s Inequality coefficient etc. 1. INTRODUCTION An effective security market provides three principal opportunities- trading equities, debt securities and derivative products. For the purpose of risk management and trading, the pricing theories of stock options have occupied important place in derivative market. These theories range from relatively undemanding binomial model to more complex B & S Model (1973). The Black-Scholes option pricing model is a landmark in the history of Derivative. This preferred model provides a closed analytical view for the valuation of European style options.
    [Show full text]
  • Introduction to Black's Model for Interest Rate
    INTRODUCTION TO BLACK'S MODEL FOR INTEREST RATE DERIVATIVES GRAEME WEST AND LYDIA WEST, FINANCIAL MODELLING AGENCY© Contents 1. Introduction 2 2. European Bond Options2 2.1. Different volatility measures3 3. Caplets and Floorlets3 4. Caps and Floors4 4.1. A call/put on rates is a put/call on a bond4 4.2. Greeks 5 5. Stripping Black caps into caplets7 6. Swaptions 10 6.1. Valuation 11 6.2. Greeks 12 7. Why Black is useless for exotics 13 8. Exercises 13 Date: July 11, 2011. 1 2 GRAEME WEST AND LYDIA WEST, FINANCIAL MODELLING AGENCY© Bibliography 15 1. Introduction We consider the Black Model for futures/forwards which is the market standard for quoting prices (via implied volatilities). Black[1976] considered the problem of writing options on commodity futures and this was the first \natural" extension of the Black-Scholes model. This model also is used to price options on interest rates and interest rate sensitive instruments such as bonds. Since the Black-Scholes analysis assumes constant (or deterministic) interest rates, and so forward interest rates are realised, it is difficult initially to see how this model applies to interest rate dependent derivatives. However, if f is a forward interest rate, it can be shown that it is consistent to assume that • The discounting process can be taken to be the existing yield curve. • The forward rates are stochastic and log-normally distributed. The forward rates will be log-normally distributed in what is called the T -forward measure, where T is the pay date of the option.
    [Show full text]
  • Annual Accounts and Report
    Annual Accounts and Report as at 30 June 2018 WorldReginfo - 5b649ee5-9497-487a-9fdb-e60cdfc3179f LIMITED COMPANY SHARE CAPITAL € 443,521,470 HEAD OFFICE: PIAZZETTA ENRICO CUCCIA 1, MILAN, ITALY REGISTERED AS A BANK. PARENT COMPANY OF THE MEDIOBANCA BANKING GROUP. REGISTERED AS A BANKING GROUP Annual General Meeting 27 October 2018 WorldReginfo - 5b649ee5-9497-487a-9fdb-e60cdfc3179f www.mediobanca.com translation from the Italian original which remains the definitive version WorldReginfo - 5b649ee5-9497-487a-9fdb-e60cdfc3179f BOARD OF DIRECTORS Term expires Renato Pagliaro Chairman 2020 * Maurizia Angelo Comneno Deputy Chairman 2020 Alberto Pecci Deputy Chairman 2020 * Alberto Nagel Chief Executive Officer 2020 * Francesco Saverio Vinci General Manager 2020 Marie Bolloré Director 2020 Maurizio Carfagna Director 2020 Maurizio Costa Director 2020 Angela Gamba Director 2020 Valérie Hortefeux Director 2020 Maximo Ibarra Director 2020 Alberto Lupoi Director 2020 Elisabetta Magistretti Director 2020 Vittorio Pignatti Morano Director 2020 * Gabriele Villa Director 2020 * Member of Executive Committee STATUTORY AUDIT COMMITTEE Natale Freddi Chairman 2020 Francesco Di Carlo Standing Auditor 2020 Laura Gualtieri Standing Auditor 2020 Alessandro Trotter Alternate Auditor 2020 Barbara Negri Alternate Auditor 2020 Stefano Sarubbi Alternate Auditor 2020 * * * Massimo Bertolini Secretary to the Board of Directors www.mediobanca.com translation from the Italian original which remains the definitive version WorldReginfo - 5b649ee5-9497-487a-9fdb-e60cdfc3179f
    [Show full text]
  • Option Pricing: a Review
    Option Pricing: A Review Rangarajan K. Sundaram Introduction Option Pricing: A Review Pricing Options by Replication The Option Rangarajan K. Sundaram Delta Option Pricing Stern School of Business using Risk-Neutral New York University Probabilities The Invesco Great Wall Fund Management Co. Black-Scholes Model Shenzhen: June 14, 2008 Implied Volatility Outline Option Pricing: A Review Rangarajan K. 1 Introduction Sundaram Introduction 2 Pricing Options by Replication Pricing Options by Replication 3 The Option Delta The Option Delta Option Pricing 4 Option Pricing using Risk-Neutral Probabilities using Risk-Neutral Probabilities The 5 The Black-Scholes Model Black-Scholes Model Implied 6 Implied Volatility Volatility Introduction Option Pricing: A Review Rangarajan K. Sundaram These notes review the principles underlying option pricing and Introduction some of the key concepts. Pricing Options by One objective is to highlight the factors that affect option Replication prices, and to see how and why they matter. The Option Delta We also discuss important concepts such as the option delta Option Pricing and its properties, implied volatility and the volatility skew. using Risk-Neutral Probabilities For the most part, we focus on the Black-Scholes model, but as The motivation and illustration, we also briefly examine the binomial Black-Scholes Model model. Implied Volatility Outline of Presentation Option Pricing: A Review Rangarajan K. Sundaram The material that follows is divided into six (unequal) parts: Introduction Pricing Options: Definitions, importance of volatility. Options by Replication Pricing of options by replication: Main ideas, a binomial The Option example. Delta The option delta: Definition, importance, behavior. Option Pricing Pricing of options using risk-neutral probabilities.
    [Show full text]
  • Pricing of Index Options Using Black's Model
    Global Journal of Management and Business Research Volume 12 Issue 3 Version 1.0 March 2012 Type: Double Blind Peer Reviewed International Research Journal Publisher: Global Journals Inc. (USA) Online ISSN: 2249-4588 & Print ISSN: 0975-5853 Pricing of Index Options Using Black’s Model By Dr. S. K. Mitra Institute of Management Technology Nagpur Abstract - Stock index futures sometimes suffer from ‘a negative cost-of-carry’ bias, as future prices of stock index frequently trade less than their theoretical value that include carrying costs. Since commencement of Nifty future trading in India, Nifty future always traded below the theoretical prices. This distortion of future prices also spills over to option pricing and increase difference between actual price of Nifty options and the prices calculated using the famous Black-Scholes formula. Fisher Black tried to address the negative cost of carry effect by using forward prices in the option pricing model instead of spot prices. Black’s model is found useful for valuing options on physical commodities where discounted value of future price was found to be a better substitute of spot prices as an input to value options. In this study the theoretical prices of Nifty options using both Black Formula and Black-Scholes Formula were compared with actual prices in the market. It was observed that for valuing Nifty Options, Black Formula had given better result compared to Black-Scholes. Keywords : Options Pricing, Cost of carry, Black-Scholes model, Black’s model. GJMBR - B Classification : FOR Code:150507, 150504, JEL Code: G12 , G13, M31 PricingofIndexOptionsUsingBlacksModel Strictly as per the compliance and regulations of: © 2012.
    [Show full text]
  • Interest Rate Caps “Smile” Too! but Can the LIBOR Market Models Capture It?
    Interest Rate Caps “Smile” Too! But Can the LIBOR Market Models Capture It? Robert Jarrowa, Haitao Lib, and Feng Zhaoc January, 2003 aJarrow is from Johnson Graduate School of Management, Cornell University, Ithaca, NY 14853 ([email protected]). bLi is from Johnson Graduate School of Management, Cornell University, Ithaca, NY 14853 ([email protected]). cZhao is from Department of Economics, Cornell University, Ithaca, NY 14853 ([email protected]). We thank Warren Bailey and seminar participants at Cornell University for helpful comments. We are responsible for any remaining errors. Interest Rate Caps “Smile” Too! But Can the LIBOR Market Models Capture It? ABSTRACT Using more than two years of daily interest rate cap price data, this paper provides a systematic documentation of a volatility smile in cap prices. We find that Black (1976) implied volatilities exhibit an asymmetric smile (sometimes called a sneer) with a stronger skew for in-the-money caps than out-of-the-money caps. The volatility smile is time varying and is more pronounced after September 11, 2001. We also study the ability of generalized LIBOR market models to capture this smile. We show that the best performing model has constant elasticity of variance combined with uncorrelated stochastic volatility or upward jumps. However, this model still has a bias for short- and medium-term caps. In addition, it appears that large negative jumps are needed after September 11, 2001. We conclude that the existing class of LIBOR market models can not fully capture the volatility smile. JEL Classification: C4, C5, G1 Interest rate caps and swaptions are widely used by banks and corporations for managing interest rate risk.
    [Show full text]
  • Interest Rate and Credit Models 6
    Convexity in LIBOR CMS rates and instruments The uses of Girsanov’s theorem Interest Rate and Credit Models 6. Convexity and CMS Andrew Lesniewski Baruch College New York Spring 2019 A. Lesniewski Interest Rate and Credit Models Convexity in LIBOR CMS rates and instruments The uses of Girsanov’s theorem Outline 1 Convexity in LIBOR 2 CMS rates and instruments 3 The uses of Girsanov’s theorem A. Lesniewski Interest Rate and Credit Models Convexity in LIBOR CMS rates and instruments The uses of Girsanov’s theorem Convexity In financial lingo, convexity is a broadly understood and often non-specific term for nonlinear behavior of the price of an instrument as a function of evolving markets. Typically, such convexities reflect the presence of some sort of optionality embedded in the instrument. In this lecture we will focus on a number of convexities which arise in interest rates markets. Convex behavior in interest rate markets manifests itself as the necessity to include convexity corrections to various popular interest rates and they can be blessings and nightmares of market practitioners. From the perspective of financial modeling they arise as the results of valuation done under the “wrong” martingale measure. A. Lesniewski Interest Rate and Credit Models Convexity in LIBOR CMS rates and instruments The uses of Girsanov’s theorem Convexity Throughout this lecture we will be making careful notational distinction between stochastic processes, such as prices of zero coupon bonds, and their current (known) values. The latter will be indicated by the subscript 0. Thus, as in the previous lectures, (i) P0(t; T ) = P(0; t; T ) denotes the current value of the forward discount factor, (ii) P(t; T ) = P(t; t; T ) denotes the time t value of the stochastic process describing the price of the zero coupon bond maturing at T .
    [Show full text]
  • Derivative Instruments and Hedging Activities
    www.pwc.com 2015 Derivative instruments and hedging activities www.pwc.com Derivative instruments and hedging activities 2013 Second edition, July 2015 Copyright © 2013-2015 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the United States member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This publication has been prepared for general information on matters of interest only, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this material was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees and agents shall not be responsible for any loss sustained by any person or entity who relies on this publication. The content of this publication is based on information available as of March 31, 2013. Accordingly, certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretative guidance that is issued. This publication has been updated to reflect new and updated authoritative and interpretative guidance since the 2012 edition.
    [Show full text]
  • Pricing Models for Bermudan-Style Interest Rate Derivatives and Options
    Erim - 05 omslag Pietersz 9/23/05 1:41 PM Pagina 1 Design: B&T Ontwerp en advies www.b-en-t.nl Print: Haveka www.haveka.nl Pricing models for Bermudan-style interest rate 71 RAOUL PIETERSZ derivatives Bermudan-style interest rate derivatives are an important class of RAOUL PIETERSZ options. Many banking and insurance products, such as mortgages, cancellable bonds, and life insurance products, contain Bermudan interest rate options associated with early redemption or cancella- tion of the contract. The abundance of these options makes evident Pricing models for that their proper valuation and risk measurement are important to banks and insurance companies. Risk measurement allows for off- Bermudan-style setting market risk by hedging with underlying liquidly traded assets rate derivatives Pricing models for Bermudan-style interest and options. Pricing models must be arbitrage-free, and consistent with (calibrated to) prices of actively traded underlying options. interest rate derivatives Model dynamics need be consistent with the observed dynamics of the term structure of interest rates, e.g., correlation between inte- rest rates. Moreover, valuation algorithms need be efficient: Finan- cial decisions based on derivatives pricing calculations often need to be made in seconds, rather than hours or days. In recent years, a successful class of models has appeared in the literature known as market models. This thesis extends the theory of market models, in the following ways: (i) it introduces a new, efficient, and more accurate approximate pricing technique, (ii) it presents two new and fast algorithms for correlation-calibration, (iii) it develops new models that enable efficient calibration for a whole new range of deriva- tives, such as fixed-maturity Bermudan swaptions, and (iv) it presents novel empirical comparisons of the performance of existing calibra- tion techniques and models, in terms of reduction of risk.
    [Show full text]
  • Exotic Interest-Rate Options
    Exotic interest-rate options Marco Marchioro www.marchioro.org November 10th, 2012 Advanced Derivatives, Interest Rate Models 2010{2012 c Marco Marchioro Exotic interest-rate options 1 Lecture Summary • Exotic caps, floors, and swaptions • Swaps with exotic floating-rate legs • No-arbitrage methods (commodity example) • Numeraires and pricing formulas • stochastic differential equations (SDEs) • Partial differential equations (PDEs) • Feynman-Kac formula • Numerical methods: analytical approximations Advanced Derivatives, Interest Rate Models 2010{2012 c Marco Marchioro Exotic interest-rate options 2 Common exotic interest-rate options There are all sorts of exotic interest-rate options. The least exotic, i.e. commonly traded, types are • Caps and floors with a digital payoff • Caps and floors with barriers • Bermuda and American Swaptions Advanced Derivatives, Interest Rate Models 2010{2012 c Marco Marchioro Exotic interest-rate options 3 Caps and floors with a digital payoff A vanilla Cap has caplets with payoff Payoff CapletV = NT (6m; 9m) max [(3m-Libor − K); 0] (1) A digital Cap has caplets with payoff 8 > NT (6m; 9m) R for 3m-Libor ≥ K Payoff < CapletD = (2) :> 0 for 3m-Libor < K Advanced Derivatives, Interest Rate Models 2010{2012 c Marco Marchioro Exotic interest-rate options 4 Advanced Derivatives, Interest Rate Models 2010{2012 c Marco Marchioro Exotic interest-rate options 5 Caps and floors with barriers A barrier Cap has caplets with payoff Payoff CapletV = NT (6m; 9m) max [(3m-Libor − K); 0] (3) • Knock-in: paid if 3m-Libor touches a barrier rknock-in • Knock-out: paid if 3m-Libor does not reach rknock-out Discrete barriers are checked at certain given barrier dates Continuous barriers are checked on each daily Libor fixing Digital payoffs are also available.
    [Show full text]