Related papers: Continuous time Ehrenfest process in term structur…
In the present paper we fill an essential gap in the Convertible Bonds pricing world by deriving a Binary Tree based model for valuation subject to credit risk. This model belongs to the framework known as Equity to Credit Risk. We show…
We consider continuous-time heterogeneous agent models with recursive utility (Epstein-Zin utility) cast as mean field games, in which agents prefer late resolution of uncertainty. The model leads to a system coupling a pair of…
This paper provides a methodology for fast and accurate pricing of the long-dated contracts that arise as the building blocks of insurance and pension fund agreements. It applies the recursive marginal quantization (RMQ) and joint recursive…
In this paper, using the structural approach is derived a mathematical model of the discrete coupon bond with the provision that allow the holder to demand early redemption at any coupon dates prior to the maturity and based on this model…
We consider the problem of hedging a European interest rate contingent claim with a portfolio of zero-coupon bonds and show that an HJM type Markovian model driven by an infinite number of sources of randomness does not have some of the…
We develop a version of the fundamental theorem of asset pricing for discrete-time markets with proportional transaction costs and model uncertainty. A robust notion of no-arbitrage of the second kind is defined and shown to be equivalent…
In this paper we provide the characterization of all finite-dimensional Heath--Jarrow--Morton models that admit arbitrary initial yield curves. It is well known that affine term structure models with time-dependent coefficients (such as the…
Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…
Motivated by the application to German interest rates, we propose a timevarying autoregressive model for short and long term prediction of time series that exhibit a temporary non-stationary behavior but are assumed to mean revert in the…
We discuss a simple extension of the Ho and Lee model with generic time-dependent drift in which: 1) we compute bond prices analytically; 2) the yield curve is sensible and the asymptotic yield is positive; and 3) our analytical solution…
This paper studies the valuation of European contingent claims with short selling bans under the equal risk pricing (ERP) framework proposed in Guo and Zhu (2017) where analytical pricing formulae were derived in the case of monotonic…
The Ehrenfest dynamics, representing a quantum-classical mean-field type coupling, is a widely used approximation in quantum molecular dynamics. In this paper, we propose a time-splitting method for an Ehrenfest dynamics, in the form of a…
We study convexity and monotonicity properties for prices of bonds and bond options when the short rate is modeled by a diffusion process. We provide conditions under which convexity of the price in the short rate is guaranteed. Under these…
We study an open-boundary version of the on-off zero-range process introduced in Hirschberg et al. [Phys. Rev. Lett. 103, 090602 (2009)]. This model includes temporal correlations which can promote the condensation of particles, a situation…
A one-factor asset pricing model with an Ornstein--Uhlenbeck process as its state variable is studied under partial information: the mean-reverting level and the mean-reverting speed parameters are modeled as hidden/unobservable stochastic…
I present the technique which can analyse some interest rate models: Constantinides-Ingersoll, CIR-model, geometric CIR and Geometric Brownian Motion. All these models have the unified structure of Whittaker function. The main focus of this…
In this study we consider the pricing of energy derivatives when the evolution of spot prices is modeled with a normal tempered stable driven Ornstein-Uhlenbeck process. Such processes are the generalization of normal inverse Gaussian…
This paper presents a discrete--time equity derivatives pricing model with default risk in a no--arbitrage framework. Using the equity--credit reduced form approach where default intensity mainly depends on the firm's equity value, we…
We propose a continuous time model for financial markets with proportional transactions costs and a continuum of risky assets. This is motivated by bond markets in which the continuum of assets corresponds to the continuum of possible…
This paper studies subordinate Ornstein-Uhlenbeck (OU) processes, i.e., OU diffusions time changed by L\'{e}vy subordinators. We construct their sample path decomposition, show that they possess mean-reverting jumps, study their equivalent…