Browsing by Author "Van Niekerk, Francesca"
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- ItemEstimating expected exposure profiles using biplot interpolation(Stellenbosch : Stellenbosch University, 2020-03) Van Niekerk, Francesca; Van der Merwe, Carel Johannes; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Statistics and Actuarial Science.ENGLISH SUMMARY : The accounting standards provides guidelines on how to determine the fair value for a financial asset or liability held at fair value. When considering the fair value of derivative instruments, some additional adjustments need to be made for counterparty credit risk. For interest rate swaps, in particular, one needs to calculate the effective exposure of the swap in order to make these adjustments. One of the most popular methods, albeit computationally intensive, is to calculate these exposures through Monte Carlo simulation. In this study an alternative method of calculating the effective exposure using biplot interpolation is proposed. In this proposed method, an analytical approach in approximating the effective exposure profile is implemented through fitting a beta function. The parameters for this beta function are then estimated through biplot interpolation, which in turn approximates the exposure profile. When the performance of the biplot interpolation approach was tested using a standard interval testing approach, the approximated biplot interpolated profile provided a reasonable approximation of the true profile.