Efficiency Analysis of Interest Rate Derivatives Market(1/2)

Project Details


In recent years, a lot of academic and practical research is developed to explore the efficiency amongthe stock, futures and options markets, and yield abundant results. However, according to the studypresented by Band of International Settlement issued in June 2014, the trading volume of interest ratederivatives accounted for about 94% of the total number in the global exchanges, which is much greaterthan the 5.2% of the stock derivatives. Although the trading volume of interest rate derivatives ismuch higher than the amount of equity derivatives, academic researchers pay less attention to the efficiencyof interest rate derivatives markets than that to the efficiency of equity derivatives. Therefore, this projectplans to examine the efficiency of interest rate derivatives markets, including interest rate caps/floors, bondoptions and swaptions.All the three kinds of interest rate options are written on the term structure of interest rates, but theirprices cannot be used to compare with each other due to the different forms of final payoffs. Therefore, wecannot determine which option price is relative higher or lower, and cannot analyze the efficiency of thethree markets. To solve this problem, this project will try to find an appropriate interest rate model and anappropriate calibration method to simultaneously evaluate the three interest rate options, so that the prices ofthe three interest rate options can be compared and efficiency analysis can be conducted. Furthermore, thisstudy will design arbitrage strategies of interest rate options for investors, and the arbitrage transactions canenhance the efficiency of interest rate options markets.Taiwan's interest rate derivatives market is still in beginning stage, and thus it needs a lot of studies oninterest rate derivatives markets. I really believe that this research project would provide a quit importantreference for relevant departments of governmentin developing the interest rate options markets.
Effective start/end date1/08/1531/07/16

UN Sustainable Development Goals

In 2015, UN member states agreed to 17 global Sustainable Development Goals (SDGs) to end poverty, protect the planet and ensure prosperity for all. This project contributes towards the following SDG(s):

  • SDG 13 - Climate Action
  • SDG 16 - Peace, Justice and Strong Institutions
  • SDG 17 - Partnerships for the Goals


  • Efficiency of Interest-Rate Derivatives Markets
  • Pricing and Hedging of Interest RateDerivatives
  • Arbitrage Strategies of Interest Rate Options


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