Related papers: A Dynamic Model for Credit Index Derivatives
This study deals with the pricing and hedging of single-tranche collateralized debt obligations (STCDOs). We specify an affine two-factor model in which a catastrophic risk component is incorporated. Apart from being analytically tractable,…
We develop a model to price inflation and interest rates derivatives using continuous-time dynamics that have some links with macroeconomic monetary DSGE models equipped with a Taylor rule: in particular, the reaction function of the…
We consider pricing weather derivatives for use as protection against weather extremes. The method described utilizes results from spatial statistics and extreme value theory to first model extremes in the weather as a max-stable process,…
This paper studies a valuation framework for financial contracts subject to reference and counterparty default risks with collateralization requirement. We propose a fixed point approach to analyze the mark-to-market contract value with…
This paper develops a flexible and computationally efficient multivariate volatility model, which allows for dynamic conditional correlations and volatility spillover effects among financial assets. The new model has desirable properties…
This paper proposes a novel model of financial prices where: (i) prices are discrete; (ii) prices change in continuous time; (iii) a high proportion of price changes are reversed in a fraction of a second. Our model is analytically…
We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model was already described in the literature. We present a new approach to the problem, based on partial…
This article presents a generic framework for modeling the dynamics of forward curves in commodity market as commodity derivatives are typically traded by futures or forwards. We have theoretically demonstrated that commodity prices are…
We introduce the general arbitrage-free valuation framework for counterparty risk adjustments in presence of bilateral default risk, including default of the investor. We illustrate the symmetry in the valuation and show that the adjustment…
Dynamic hedging strategies are essential for effective risk management in derivatives markets, where volatility and market sentiment can greatly impact performance. This paper introduces a novel framework that leverages large language…
Mandatory emission trading schemes are being established around the world. Participants of such market schemes are always exposed to risks. This leads to the creation of an accompanying market for emission-linked derivatives. To evaluate…
A Levy-driven Ornstein-Uhlenbeck process is proposed to model the evolution of the risk-free rate and default intensities for the purpose of evaluating option contracts on a credit index. Time evolution in credit markets is assumed to…
Index tracking, also known as passive investing, has gained significant traction in financial markets due to its cost-effective and efficient approach to replicating the performance of a specific market index. This review paper provides a…
This paper presents a convenient framework for modeling default process and pricing derivative securities involving credit risk. The framework provides an integrated view of credit valuation adjustment by linking distance-to-default,…
The Constant Elasticity of Variance (CEV) model is mathematically presented and then used in a Credit-Equity hybrid framework. Next, we propose extensions to the CEV model with default: firstly by adding a stochastic volatility diffusion…
By capturing outliers, volatility clustering, and tail dependence in the asset return distribution, we build a sophisticated model to predict the downside risk of the global financial market. We further develop a dynamic regime switching…
We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump--diffusion process for the risk factors, i.e. for the company assets. We also include correlations…
In this paper, we propose a new exogenous model to address the problem of negative interest rates that preserves the analytical tractability of the original Cox-Ingersoll-Ross (CIR) model with a perfect fit to the observed term-structure.…
A three-dimensional extension of the structural default model with firms' values driven by correlated diffusion processes is presented. Green's function based semi-analytical methods for solving the forward calibration problem and backward…
Stochastic differential equation (SDE) models are the foundation for pricing and hedging financial derivatives. The drift and volatility functions in SDE models are typically chosen to be algebraic functions with a small number (less than…