Presentation for Risk Magazine Swap Training Course, September 1997. Discusses some simple approaches to modeling products that incorporate correlation, such as yield curve spread options. Focus on using the simplest model which solves the problem and on hedging and managing risks.
Originally presented September 1997 and available as a .pdf here on the Close Mountain site.
Both CMS (Constant Maturity Swap) and LIBOR-in-arrears swaps have payments that are linear with respect to an index while the offsetting hedges are convex. The linearity of the payment (relative to the convex hedges) imposes a cost that requires a “convexity adjustment” applied to the linear payment. This note lays out a practical method for calculating the value of the convexity adjustment.
This paper was published in Derivatives Quarterly, Winter 1995. A copy, as a 15-page .pdf, is available on the CloseMountain site
A three-page summary outlines the “convexity adjustment” applied to constant maturity swaps. Published in Derivatives Weekly August 28th 1995, a copy is available here on the CloseMountain site
This paper lays out the model as in the 1981 paper but also discusses estimation and identification in some detail. Simplifies to a stationary environment with a single wage and then fits gross flow data. Includes empirical results showing interesting differences across demographic groups in fitted parameters and resulting behavior.
T. Coleman, Research Paper No. 272, State University of New York at Stony Brook, July 1985. Available on the SSRN and also here on the Close Mountain site.
This paper lays out the theory of a three-state model of labor supply (job, unemployed, and out of the labor force) in full detail – stationary and non-stationary, discrete and continuous time. Proves existence and uniqueness of the value function. Not much on estimation or identification.
“A Dynamic Model of Labor Supply Under Uncertainty 1981” T. Coleman and J. Heckman 1981 (pdf).
