Related papers: Introduction into "Local Correlation Modelling"
In this paper we extend the theory of option pricing to take into account and explain the empirical evidence for asset prices such as non-Gaussian returns, long-range dependence, volatility clustering, non-Gaussian copula dependence, as…
In setting up a stochastic description of the time evolution of a financial index, the challenge consists in devising a model compatible with all stylized facts emerging from the analysis of financial time series and providing a reliable…
In actuarial research, a task of particular interest and importance is to predict the loss cost for individual risks so that informative decisions are made in various insurance operations such as underwriting, ratemaking, and capital…
This paper addresses the approximation of the local volatility function in the Cheyette interest rate model. Its main contribution is an explicit analytical formula for approximating local volatility, derived by extending the classical…
We develop a Bayesian framework for the efficient estimation of impulse responses using Local Projections (LPs) with instrumental variables. It accommodates multiple shocks and instruments, accounts for autocorrelation in multi-step…
We introduce a copula mixture model to perform dependency-seeking clustering when co-occurring samples from different data sources are available. The model takes advantage of the great flexibility offered by the copulas framework to extend…
Locational Marginal Price (LMP) is a dual variable associated with supply-demand matching and represents the cost of delivering power to a particular location if the load at that location increases. In recent times it become more volatile…
This article presents factor copula approaches to model temporal dependency of non-Gaussian (continuous/discrete) longitudinal data. Factor copula models are canonical vine copulas which explain the underlying dependence structure of a…
We present a class of flexible and tractable static factor models for the term structure of joint default probabilities, the factor copula models. These high-dimensional models remain parsimonious with pair-copula constructions, and nest…
We model the logarithm of the price (log-price) of a financial asset as a random variable obtained by projecting an operator stable random vector with a scaling index matrix $\underline{\underline{E}}$ onto a non-random vector. The scaling…
Deep learning for option pricing has emerged as a novel methodology for fast computations with applications in calibration and computation of Greeks. However, many of these approaches do not enforce any no-arbitrage conditions, and the…
Dependence strucuture estimation is one of the important problems in machine learning domain and has many applications in different scientific areas. In this paper, a theoretical framework for such estimation based on copula and copula…
We consider the pricing of derivatives in a setting with trading restrictions, but without any probabilistic assumptions on the underlying model, in discrete and continuous time. In particular, we assume that European put or call options…
Option prices encode the market's collective outlook through implied density and implied volatility. An explicit link between implied density and implied volatility translates the risk-neutrality of the former into conditions on the latter…
The usage of a spot volatility estimate based on a volatility decomposition in a time-changed price-model according to the trading times is investigated. In this model clock-time volatility splits up into the product of tick-time volatility…
We propose the use of indirect inference estimation to conduct inference in complex locally stationary models. We develop a local indirect inference algorithm and establish the asymptotic properties of the proposed estimator. Due to the…
We obtain a decomposition of the call option price for a very general stochastic volatility diffusion model extending the decomposition obtained by E. Al\`os in [2] for the Heston model. We realize that a new term arises when the stock…
Due to its theoretical virtues, several recent works propose the use of the incentive-compatible Vickrey-Clarke-Groves (VCG) mechanism for electricity markets. Coalitions of participants, however, can influence the VCG outcome to obtain…
We propose a clustered local projection (clustered LP) method to estimate impulse response functions in a class of time-varying models where parameter variation is linked to a low-dimensional matrix of observables. We show that the…
Stylized facts can be regarded as constraints for any modeling attempt of price dynamics on a financial market, in that an empirically reasonable model has to reproduce these stylized facts at least qualitatively. The dynamics of market…