Related papers: Approximate formulae for pricing zero-coupon bonds…
This article's aim is to provide the solution to the equity premium puzzle without using calibrated values. Calibrated values of subjective time discount factor were used in my prior derived models because 4 variables were determined from 3…
We construct prior-free auctions with constant-factor approximation guarantees with ordered bidders, in both unlimited and limited supply settings. We compare the expected revenue of our auctions on a bid vector to the monotone price…
In this paper, we derive closed-form formulas of first-order approximation for down-and-out barrier and floating strike lookback put option prices under a stochastic volatility model, by using an asymptotic approach. To find the explicit…
A stochastic model for pure-jump diffusion (the compound renewal process) can be used as a zero-order approximation and as a phenomenological description of tick-by-tick price fluctuations. This leads to an exact and explicit general…
We introduce a bond portfolio management theory based on foundations similar to those of stock portfolio management. A general continuous-time zero-coupon market is considered. The problem of optimal portfolios of zero-coupon bonds is…
We consider the problem of forecasting the aggregate demand of a pool of price-responsive consumers of electricity. The price-response of the aggregation is modeled by an optimization problem that is characterized by a set of marginal…
We introduce a Vasicek-type short rate model which has two additional parameters representing memory effect. This model presents better results in yield curve fitting than the classical Vasicek model. We derive closed-form expressions for…
Bond prices are a reflection of extremely complex market interactions and policies, making prediction of future prices difficult. This task becomes even more challenging due to the dearth of relevant information, and accuracy is not the…
This paper introduces a feasible and practical Bayesian method for unit root testing in financial time series. We propose a convenient approximation of the Bayes factor in terms of the Bayesian Information Criterion as a straightforward and…
In this paper, we show a tight approximation guarantee for budget-feasible mechanisms with an additive buyer. We propose a new simple randomized mechanism with approximation ratio of $2$, improving the previous best known result of $3$. Our…
A simple method is proposed to estimate the instantaneous correlations between state variables in a hybrid system from the empirical correlations between observable market quantities such as spot rate, stock price and implied volatility.…
This paper addresses a critical inconsistency in models of the term structure of interest rates (TSIR), where zero-coupon bonds are priced under risk-neutral measures distinct from those used in equity markets. We propose a unified TSIR…
We propose a modification of the classical Black-Derman-Toy (BDT) interest rate tree model, which includes the possibility of a jump with small probability at each step to a practically zero interest rate. The corresponding BDT algorithms…
This paper presents adaptive boundary element methods for positive, negative, as well as zero order operator equations, together with proofs that they converge at certain rates. The convergence rates are quasi-optimal in a certain sense…
We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…
In multivariate nonparametric regression the additive models are very useful when a suitable parametric model is difficult to find. The backfitting algorithm is a powerful tool to estimate the additive components. However, due to complexity…
Affine term structure models have gained significant attention in the finance literature, mainly due to their analytical tractability and statistical flexibility. The aim of this article is to present both theoretical foundations as well as…
In corporate bond markets, which are mainly OTC markets, market makers play a central role by providing bid and ask prices for a large number of bonds to asset managers from all around the globe. Determining the optimal bid and ask quotes…
We propose a new model for the joint evolution of the European inflation rate, the European Central Bank official interest rate and the short-term interest rate, in a stochastic, continuous time setting. We derive the valuation equation for…
There are a number of situations where, when computing prices of financial derivatives using quasi-Monte Carlo (QMC), it turns out to be beneficial to apply an orthogonal transform to the standard normal input variables. Sometimes those…