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statistical methods need to be used to account for
the transactions; this will need to be allowed for
in the models.
3. Many of these models will require historical data
on price, interest rates, economic indicators,
company reports and analyst estimates. This data
is available from several vendors who need to be
identified and form of feeds established.
4. Develop pricing models for interest rate and
currency swaps, allowing proper determination of
zero coupon rates and pricing based on the
floating and fixed rate side. Perform
benchmarking.
5. Identify list of other significant derivatives for
which to begin modeling efforts. –- Discuss with
the IRS which of the many derivative securities
should be focused on. This activity will help set
the framework for model development of subsequent
securities.
6. Determination of platform to use in the field. It
is strongly recommended that this be a windows
driven system. Many of the models developed will
require a large computing platform. The way to
handle this is to have a software package on the
field agent’s computer that would remotely log
into the larger machines.
7. Non-linear models for interest rate yield curve
predictions. –- Yield curve models are central to
the valuation of these securities, issues
associated with these must be addressed early in
the game.
8. Credit risk models and their incorporation into
swap pricing. -- In a similar fashion to yield
curve models credit risk or the risk of defaulting
on a contract must be addressed.
9. Implement a working system that has a basic set of
models with the look and feel of future systems.
-- Test in house a beta version of system to be
implemented.
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