Related papers: Moment Explosion in the LIBOR Market Model
We propose and investigate two model classes for forward power price dynamics, based on continuous branching processes with immigration, and on Hawkes processes with exponential kernel, respectively. The models proposed exhibit jumps…
In this article, we consider a Markov-modulated model with jumps for short rate dynamics. We obtain closed formulas for the term structure and forward rates using the properties of the jump-telegraph process and the expectation hypothesis.…
We present explicit estimates of right and left tails and exact (up to universal, multiplicative constants) estimates of tails and moments of hitting times of Bessel processes. The latter estimates are obtained from more general estimates…
We propose a novel time discretization for the log-normal SABR model which is a popular stochastic volatility model that is widely used in financial practice. Our time discretization is a variant of the Euler-Maruyama scheme. We study its…
Pricing interest-rate financial derivatives is a major problem in finance, in which it is crucial to accurately reproduce the time-evolution of interest rates. Several stochastic dynamics have been proposed in the literature to model either…
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 show that in a large class of stochastic volatility models with additional skew-functions (local-stochastic volatility models) the tails of the cumulative distribution of the log-returns behave as exp(-c|y|), where c is a positive…
Value at risk (VaR) is a risk measure that has been widely implemented by financial institutions. This paper measures the correlation among asset price changes implied from VaR calculation. Empirical results using US and UK equity indexes…
The class of affine LIBOR models is appealing since it satisfies three central requirements of interest rate modeling. It is arbitrage-free, interest rates are nonnegative and caplet and swaption prices can be calculated analytically. In…
The paper Borovkova et al. [4] uses moment matching method to obtain closed form formulas for spread and basket call option prices under log normal models. In this note, we also use moment matching method to obtain semi-closed form formulas…
We obtain the rate of growth of long strange segments and the rate of decay of infinite horizon ruin probabilities for a class of infinite moving average processes with exponentially light tails. The rates are computed explicitly. We show…
In this paper we show how to approximate a Heath-Jarrow-Morton dynamics for the forward prices in commodity markets with arbitrage-free models which have a finite dimensional state space. Moreover, we recover a closed form representation of…
This research extends the conventional concepts of the bid--ask spread (BAS) and mid-price to include the total market order book bid--ask spread (TMOBBAS) and the global mid-price (GMP). Using high-frequency trading data, we investigate…
In this paper we study the evolution of asset price bubbles driven by contagion effects spreading among investors via a random matching mechanism in a discrete-time version of the liquidity based model of [25]. To this scope, we extend the…
A pricing formula for discount bonds, based on the consideration of the market perception of future liquidity risk, is established. An information-based model for liquidity is then introduced, which is used to obtain an expression for the…
We show that the martingale component in the long-term factorization of the stochastic discount factor due to Alvarez and Jermann (2005) and Hansen and Scheinkman (2009) is highly volatile, produces a downward-sloping term structure of bond…
We derive a forward partial integro-differential equation for prices of call options in a model where the dynamics of the underlying asset under the pricing measure is described by a -possibly discontinuous- semimartingale. A uniqueness…
The intermarket analysis, in particular the lead-lag relationship, plays an important role within financial markets. Therefore a mathematical approach to be able to find interrelations between the price development of two different…
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 propose novel methods for change-point testing for nonparametric estimators of expected shortfall and related risk measures in weakly dependent time series. We can detect general multiple structural changes in the tails of marginal…