Related papers: Recovery Swaps
In the area of sparse recovery, numerous researches hint that non-convex penalties might induce better sparsity than convex ones, but up until now those corresponding non-convex algorithms lack convergence guarantees from the initial…
Closed form formulas for swaption prices in HJM model are derived. These formulas are used for nonparametric fit of deterministic forward volatility. It is demonstrated that this formula and non-parametric fit works very well and can be…
In the recent years, banks have sold structured products such as worst-of options, Everest and Himalayas, resulting in a short correlation exposure. They have hence become interested in offsetting part of this exposure, namely buying back…
This paper considers mutual obligations in the interconnected bank system and analyzes their influence on joint and marginal survival probabilities as well as CDS and FTD prices for the individual banks. To make the role of mutual…
Recently, in a number of papers it was understood that results on sampling discretization and on the universal sampling discretization can be successfully used in the problem of sampling recovery. Moreover, it turns out that it is…
Conventional analog-to-digital converters (ADCs) clip when signals exceed their input range. Modulo (unlimited) sampling overcomes this limitation by folding the signal before digitization, but existing recovery methods are either…
In this paper, we propose a novel sparse recovery method based on the generalized error function. The penalty function introduced involves both the shape and the scale parameters, making it very flexible. The theoretical analysis results in…
It is well established that in a market with inclusion of a risk-free asset the single-period mean-variance efficient frontier is a straight line tangent to the risky region, a fact that is the very foundation of the classical CAPM. In this…
In this paper, we employ Credit Default Swaps (CDS) to model the joint and conditional distress probabilities of banks in Europe and the U.S. using factor copulas. We propose multi-factor, structured factor, and factor-vine models where the…
We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
We present an arbitrage free theoretical framework for modeling bid and ask prices of dividend paying securities in a discrete time setup using theory of dynamic acceptability indices. In the first part of the paper we develop the theory of…
In a series of recent papers, Damiano Brigo, Andrea Pallavicini, and co-authors have shown that the value of a contract in a Credit Valuation Adjustment (CVA) setting, being the sum of the cash flows, can be represented as a solution of a…
This paper introduces a novel stochastic model for credit spreads. The stochastic approach leverages the diffusion of default intensities via a CIR++ model and is formulated within a risk-neutral probability space. Our research primarily…
In this paper, we establish a market model for the term structure of forward inflation rates based on the risk-neutral dynamics of nominal and real zero-coupon bonds. Under the market model, we can price inflation caplets as well as…
We study the incentives of banks in a financial network, where the network consists of debt contracts and credit default swaps (CDSs) between banks. One of the most important questions in such a system is the problem of deciding which of…
This paper demonstrates a practical method for computing the solution of an expectation-constrained robust maximization problem with immediate applications to model-free no-arbitrage bounds and super-replication values for many financial…
A novel procedure is presented for the objective comparison and evaluation of a bank's decision rules in optimising the timing of loan recovery. This procedure is based on finding a delinquency threshold at which the financial loss of a…
Credit Valuation Adjustment captures the difference in the value of derivative contracts when the counterparty default probability is taken into account. However, in the context of a network of contracts, the default probability of a direct…
Consider the problem of pricing options on forwards in energy markets, when spot prices follow a geometric multi-factor model in which several rates of mean reversion appear. In this paper we investigate the role played by slow mean…
We present a quantitative study of the markets and models evolution across the credit crunch crisis. In particular, we focus on the fixed income market and we analyze the most relevant empirical evidences regarding the divergences between…