Advances in Tenor Basis Modeling: Boundedness, Specification & Calibration
The behavior of tenor basis spreads is of crucial importance to CVA for tenor basis swaps. A pervasive feature of such spreads is that they are typically positive, suggesting a natural lower bound.
On Thursday, October 10th at 10:00am EDT, Numerix Director of Quantitative Research, Andrew McClelland Ph.D., presented new research. He introduced a lower-bounded multi-curve Cheyette model, with lower bounds owing to level dependence in spread volatilities and derives swaption pricing formulae and other quantities relevant for practical use. Issues arising out of the calibration of multi-curve models were discussed and a calibration strategy was formalized.
Dr. McClelland covered:
- Tenor basis in XVA and its impact on calibrated discount-rate volatilities
- A Cheyette-style multi-curve model with lower-bounded tenor spreads
- A complicated HJM-style drift condition on the multi-curve model
- Calibrating to historical basis-spread behavior (jointly with swaptions)
- The impact of benchmark rate reforms on multi-curve modeling and calibration
Featured Speakers
Andrew McClelland, Ph.D.
Andrew McClelland’s quantitative research at Numerix focuses on XVA pricing and hedging, generating counterparty credit risk metrics for structured products, and estimating risk model parameters via time-series estimation. He earned his PhD in finance at the Queensland University of Technology for a thesis on financial econometrics. He considered markets exhibiting crash feedback, option pricing for such markets, and parameter estimation for such markets using particle filtering methods. Dr. McClelland’s work has been published in the Journal of Banking and Finance, the Journal of Econometrics, and the Journal of Business and Economic Statistics.
As Chief Marketing Officer and Executive Vice President of Global Marketing & Corporate Communications, James leads the company’s global marketing and corporate communications efforts, spanning a diverse set of solutions and audiences. He oversees integrated marketing communications to clients in the largest global financial markets and to the Numerix partner network through the company's branding, electronic marketing, research, events, public relations, advertising and relationship marketing.
Since joining Numerix in 2008, James has launched the organization’s award-winning thought leadership program, bringing to light challenges and insights from Numerix market experts. He also hosts the Numerix Video Blog, tackling the challenges pressing the derivatives markets—from regulatory issues to trading strategies.
Prior to joining Numerix, James served as Managing Director of Global Marketing and Communications for Fitch Ratings. During his tenure at Fitch, he built the firm’s public relations program, oversaw investor relations and led marketing and communications plans for several acquisitions. Prior to Fitch, James was a member of the communications team at Moody's Investors Service.
