Related papers: Interest-Rate Modeling with Multiple Yield Curves
A new test of a wide class of interest rate models is proposed and applied to a recently developed quantum field theoretic model and the industry standard Heath-Jarrow-Morton model. This test is independent of the volatility function unlike…
We price European-style options written on forward contracts in a commodity market, which we model with an infinite-dimensional Heath-Jarrow-Morton (HJM) approach. For this purpose we introduce a new class of state-dependent volatility…
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…
The LIBOR Market Model (LMM) is a widely used model for pricing interest rate derivatives. While the Black-Scholes model is well-known for pricing stock derivatives such as stock options, a larger portion of derivatives are based on…
In fixed income sector, the yield curve is probably the most observed indicator by the market for trading and fifinancing purposes. A yield curve plots interest rates across different contract maturities from short end to as long as 30…
Developments in finance industry and academic research has led to innovative financial products. This paper presents an alternative approach to price American options. Our approach utilizes famous \cite{heath1992bond} ("HJM") technique to…
This paper offers a new class of models of the term structure of interest rates. We allow each instantaneous forward rate to be driven by a different stochastic shock, constrained in such a way as to keep the forward rate curve continuous.…
The aim of this thesis is to analyze and renovate few main-stream models on inflation derivatives. In the first chapter of the thesis, concepts of financial instruments and fundamental terms are introduced, such as coupon bond,…
We describe a model for evolving commodity forward prices that incorporates three important dynamics which appear in many commodity markets: mean reversion in spot prices and the resulting Samuelson effect on volatility term structure,…
US Yield curve has recently collapsed to its most flattened level since subprime crisis and is close to the inversion. This fact has gathered attention of investors around the world and revived the discussion of proper modeling and…
We study the pricing of European-style options written on forward contracts within function-valued infinite-dimensional affine stochastic volatility models. The dynamics of the underlying forward price curves are modeled within the…
We present a high-level framework that explains why, in practice, different pricing models calibrated to the same vanilla surface tend to produce similar valuations for exotic derivatives. Our approach acts as an overlay on the Monte Carlo…
We consider an HJM model setting for Markov-chain modulated forward rates. The underlying Markov chain is assumed to induce regime switches on the forward curve dynamics. Our primary focus is on the interest rate and energy futures markets.…
Local Volatility (LV) is a powerful tool for market modeling, enabling the generation of arbitrage-free scenarios calibrated to all European options. To implement LV, we need to interpolate and extrapolate option prices. This approach is…
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…
In energy markets, joint historical and implied calibration is of paramount importance for practitioners, yet notoriously challenging due to the need to align historical correlations of futures contracts with implied volatility smiles from…
In this paper, a multivariate constrained robust M-regression (MCRM) method is developed to estimate shaping coefficients for electricity forward prices. An important benefit of the new method is that model arbitrage can be ruled out at an…
We develop a unified framework for modeling multiple term structures arising in financial, insurance, and energy markets, adopting an extended Heath-Jarrow-Morton (HJM) approach under the real-world probability. We study market viability…
The financial crisis of 2007/08 caused catastrophic consequences and brought a bunch of changes around the world. Interest rates that were known to follow or behave similarly of each other diverged. Furthermore, the regulation and in…
The notion of a credit spread curve is fundamental in fixed income investing, but in practice it is not `given' and needs to be constructed from bond prices either for a particular issuer, or for a sector rating-by-rating. Rather than…