Forthcoming articles

 


International Journal of Bonds and Derivatives

 

These articles have been peer-reviewed and accepted for publication in IJBD, but are pending final changes, are not yet published and may not appear here in their final order of publication until they are assigned to issues. Therefore, the content conforms to our standards but the presentation (e.g. typesetting and proof-reading) is not necessarily up to the Inderscience standard. Additionally, titles, authors, abstracts and keywords may change before publication. Articles will not be published until the final proofs are validated by their authors.

 

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International Journal of Bonds and Derivatives (3 papers in press)

 

Regular Issues

 

  • Corrections in Heston model derivations for bond options   Order a copy of this article
    by Satrajit Mandal, Sujoy Bhattacharya 
    Abstract: A closed form solution for European call option price has been first proposed by Black and Scholes. Later, Heston modified the model by replacing the constant volatility with a stochastic volatility and applied it on bond options. However, for bond options, we found that the mathematical derivations of the partial differential equations involving probabilities for the call option expiring in the money obtained by Heston contain some errors. This paper rectifies the errors and a new PDE has been derived. The paper uses important theories of stochastic calculus and portfolio theory such as Ito's lemma, portfolio hedging while formulating the PDE for the option price probabilities.
    Keywords: Option; Black and Scholes; Heston; Stochastic volatility; Ito's lemma.

  • Output, environmental pollution and health nexus in Vietnam: an estimation of simultaneous model with panel data   Order a copy of this article
    by Ha Hai Duong, Kankesu Jayanthakumaran 
    Abstract: This paper estimates the provincial data of carbon dioxide emissions in 60 provinces in Vietnam for the years 2000 to 2010, and investigates the simultaneous relationships between output, environmental pollution and health in Vietnam. By applying the two-step system-dynamic GMM, lagged effects, endogeneity, heteroscedasticity, and autocorrelation for the variables have been addressed. The three endogenous variables are real per capita gross domestic product, per capita carbon dioxide equivalent emissions, and number of tuberculosis cases per thousand people. The three endogenous variables are determined in terms of several exogenous variables represented through the number of patient beds as a proxy for health service, graduate enrolment as a proxy for human capital, and foreign direct investment and population size. The results show that increase in output causes an increase in the emissions. Meanwhile, an increase in emissions causes bad population health in the Mekong River Delta region, one of the highest tuberculosis incidence regions in Vietnam. The results also demonstrate that population health is an important input into economic growth in Vietnam. Better population health leads to increased output. Findings have policy implications for health, pollution and investment related issues for Vietnam.
    Keywords: Environmental pollution; GDP; carbon dioxide emissions; health; simultaneous equations model; system- dynamic GMM.

  • Rationale and Mechanics for Peak Natural Catastrophe Variance Swaps in Insurance   Order a copy of this article
    by Ivelin Zvezdov 
    Abstract: The geospatial variability, clustering and dependence of natural catastrophe loss for (re)insured risks are well-known physical realities for insurance industry practitioners and academics. These realities create complex underlying risks for (re)insurance policy underwriting, capital reserving and portfolio management, all of which are reasonably hard to measure and difficult to quantify. The quantitative measurements of such underlying risk factors are also known as second order risks. They are traditionally evaluated and hedged using statistical models for variance and volatility and involve specific complexities in modelling and managing both, volatility and correlation. This technical study explores the motivation, structuring and detailed mechanics for using what we call a peak natural catastrophe risk variance swap contract adapted to provide reinsurance cover for a property and business interruption insurance portfolio. We use known natural catastrophe event historical and modeled loss data to structure, price and test the sensitivities of the swap contract and then present the results in a numerical case study. Our motivation for this study is to explore the opportunities for financial engineering and innovation to enhance insurance portfolio risk transfer by extending the practice to second order of risk factors. This expansion will allow for constructing hedging strategies, which otherwise may not be possible to achieve with traditional reinsurance treaties and contracts. The authors conclude with an assessment of the current state of second order risk transfer mechanisms, their requirements and potential in times of increasing climate variability, as contribution to climate change risk management with this discussion on tooling for the financial risk transfer process.
    Keywords: Peak risk variance swap; geo-spatial natural catastrophe risk; insurance risk transfer.