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This papers addresses the stock option pricing problem in a continuous time market model where there are two stochastic tradable assets, and one of them is selected as a num\'eraire. It is shown that the presence of arbitrarily small…
A Bayesian estimation of a GARCH model is performed for US Dollar/Japanese Yen exchange rate by the Metropolis-Hastings algorithm with a proposal density given by the adaptive construction scheme. In the adaptive construction scheme the…
We consider the problem of estimating the common time of a change in the mean parameters of panel data when dependence is allowed between the panels in the form of a common factor. A CUSUM type estimator is proposed, and we establish first…
In this paper we analyse financial implications of exchangeability and similar properties of finite dimensional random vectors. We show how these properties are reflected in prices of some basket options in view of the well-known put-call…
We analyze tick data of yen-dollar exchange with a focus on its up and down movement. We show that there exists a rather particular conditional probability structure with such high frequency data. This result provides us with evidence to…
Capital allocation principles are used in various contexts in which a risk capital or a cost of an aggregate position has to be allocated among its constituent parts. We study capital allocation principles in a performance measurement…
Intuitively, the default risk of a single borrower is higher when her or his assets and debt are denominated in different currencies. Additionally, the default dependence of borrowers with assets and debt in different currencies should be…
We revisit the problem of pricing options with historical volatility estimators. We do this in the context of a generalized GARCH model with multiple time scales and asymmetry. It is argued that the reason for the observed volatility risk…
When trading American and Asian options in the FX derivatives market, banks must calculate prices using a complex mathematical model. It is often observed that different models produce varying prices for the same exotic option, which…
Conformal prediction has been a very popular method of distribution-free predictive inference in recent years in machine learning and statistics. Its popularity stems from the fact that it works as a wrapper around any prediction algorithm…
Is an option to early terminate a swap at its market value worth zero? At first sight it is, but in presence of counterparty risk it depends on the criteria used to determine such market value. In case of a single uncollateralised swap…
In this paper, we explore the pricing and hedging strategies for an innovative insurance product called the equity protection swap(EPS). Notably, we focus on the application of EPSs involving cross-currency reference portfolios, reflecting…
Valuation adjustments, collectively named XVA, play an important role in modern derivatives pricing to take into account additional price components such as counterparty and funding risk premia. They are an exotic price component carrying a…
In this paper we study time-consistent risk measures for returns that are given by a GARCH(1,1) model. We present a construction of risk measures based on their static counterparts that overcomes the lack of time-consistency. We then study…
Recent literature has found conditional transition rates to be a useful tool for avoiding Markov assumptions in multi-state models. While the estimation of univariate conditional transition rates has been extensively studied, the…
Although the CML (Capital Market Line), the Intertemporal-CAPM, the CAPM/SML (Security Market Line) and the Intertemporal Arbitrage Pricing Theory (IAPT) are widely used in portfolio management, valuation and capital markets financing;…
This paper expands on stochastic volatility models by proposing a data-driven method to select the macroeconomic events most likely to impact volatility. The paper identifies and quantifies the effects of macroeconomic events across…
An Entropic Dynamics of exchange rates is laid down to model the dynamics of foreign exchange rates, FX, and European Options on FX. The main objective is to represent an alternative framework to model dynamics. Entropic inference is an…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
A new model for the stock market price analysis is proposed. It is suggested to look at price as an everywhere discontinuous function of time of bounded variation.