Presentation of the English translation of Ettore Majorana's paper: The value of statistical laws in physics and social sciences |
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| Authors: | Rosario Nunzio Mantegna |
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| Institution: | 1. Graduate School of Social Sciences, Tokyo Metropolitan University , Tokyo, Japan;2. Graduate School of Economics, Kyoto University , Kyoto, Japan kijima@center.tmu.ac.jp;4. Graduate School of Social Sciences, Tokyo Metropolitan University , Tokyo, Japan;5. Graduate School of Economics, Kyoto University , Kyoto, Japan |
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| Abstract: | We consider a consistent pricing model of government bonds, interest-rate swaps and basis swaps in one currency within the no-arbitrage framework. To this end, we propose a three yield-curve model, one for discounting cash flows, one for calculating LIBOR deposit rates and one for calculating coupon rates of government bonds. The derivation of the yield curves from observed data is presented, and the option prices on a swap or a government bond are studied. A one-factor quadratic Gaussian model is proposed as a specific model, and is shown to provide a very good fit to the current Japanese low-interest-rate environment. |
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| Keywords: | Interest rates Pricing model Yield curves |
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