Related papers: A Dynamic Model for Credit Index Derivatives
A new chaotic financial system is proposed by considering ethics involvement in a four-dimensional financial system with market confidence. A five-dimensional conformable derivative financial system is presented by introducing conformable…
Derivative pricing is about cash flow discounting at the riskfree rate. This teaching has lost its meaning post the financial crisis, due to the addition of extra value adjustments (XVA), which also made derivatives pricing and valuation a…
We construct models for the pricing and risk management of inflation-linked derivatives. The models are rational in the sense that linear payoffs written on the consumer price index have prices that are rational functions of the state…
We present a fast and robust calibration method for stochastic volatility models that admit Fourier-analytic transform-based pricing via characteristic functions. The design is structure-preserving: we keep the original pricing transform…
We provide analytical pricing formula of corporate defaultable bond with both expected and unexpected default in the case with stochastic default intensity. In the case with constant short rate and exogenous default recovery using PDE…
BSLP is a two-dimensional dynamic model of interacting portfolio-level loss and spread (more exactly, loss intensity) processes. The model is similar to the top-down HJM-like frameworks developed by Schonbucher (2005) and…
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration…
This paper proposes to model asset price dynamics with a mixture of diffusion processes where the instantaneous volatility of the underlying diffusion process contains a random vector. The marginal probability distributions of the proposed…
The pricing of derivatives tied to baskets of assets demands a sophisticated framework that aligns with the available market information to capture the intricate non-linear dependency structure among the assets. We describe the dynamics of…
We introduce a new deep-learning based algorithm to evaluate options in affine rough stochastic volatility models. Viewing the pricing function as the solution to a curve-dependent PDE (CPDE), depending on forward curves rather than the…
In this paper we present a new method to compute the first-order approximation of the price of derivatives on futures in the context of multiscale stochastic volatility of Fouque \textit{et al.} (2011, CUP). It provides an alternative…
We introduce a class of short-rate models that exhibit a ``higher for longer'' phenomenon. Specifically, the short-rate is modeled as a general time-homogeneous one-factor Markov diffusion on a finite interval. The lower endpoint is assumed…
In this paper, we relax the power parameter of instantaneous variance and develop a new stochastic volatility plus jumps model that generalize the Heston model and 3/2 model as special cases. This model has two distinctive features. First,…
We propose a hybrid model of portfolio credit risk where the dynamics of the underlying latent variables is governed by a one factor GARCH process. The distinctive feature of such processes is that the long-term aggregate return…
In this note we show how to replicate a stylized CDS with a repurchase agreement and an asset swap. The latter must be designed in such a way that, on default of the issuer, it is terminated with a zero close-out amount. This break clause…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
We introduce a multiple curve framework that combines tractable dynamics and semi-analytic pricing formulas with positive interest rates and basis spreads. Negatives rates and positive spreads can also be accommodated in this framework. The…
We introduce a new method to calculate the credit exposure of European and path-dependent options. The proposed method is able to calculate accurate expected exposure and potential future exposure profiles under the risk-neutral and the…
In the over-the-counter market in derivatives, we sometimes see large numbers of traders taking the same position and risk. When there is this kind of concentration in the market, the position impacts the pricings of all other derivatives…
Momentum strategies are an important part of alternative investments and are at the heart of commodity trading advisors (CTAs). These strategies have, however, been found to have difficulties adjusting to rapid changes in market conditions,…