Related papers: Parsimonious HJM Modelling for Multiple Yield-Curv…
A market with defaultable bonds where the bond dynamics is in a Heath-Jarrow-Morton setting and the forward rates are driven by an infinite number of Levy factors is considered. The setting includes rating migrations driven by a Markov…
We consider the theory of bond discounts, defined as the difference between the terminal payoff of the contract and its current price. Working in the setting of finite-dimensional realizations in the HJM framework, under suitable notions of…
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…
In traditional financial markets, yield curves are widely available for countries (and, by extension, currencies), financial institutions, and large corporates. These curves are used to calibrate stochastic interest rate models, discount…
Pairwise Markov Models (PMMs) extend the wellknown Hidden Markov Models (HMMs). Being significantly more general, PMMs enable several types of processing, like Bayesian filtering or smoothing, similar to those used in HMMs. In this paper,…
Time series of matrix-valued data are increasingly available in various areas including economics, finance, social science, among others. These data may shed light on the inter-dynamical relationships between two sets of attributes, for…
Financial markets tend to switch between various market regimes over time, making stationarity-based models unsustainable. We construct a regime-switching model independent of asset classes for risk-adjusted return predictions based on…
Numerous kinds of uncertainties may affect an economy, e.g. economic, political, and environmental ones. We model the aggregate impact by the uncertainties on an economy and its associated financial market by randomised mixtures of L\'evy…
In this paper we propose a semi-Markov modulated model of interest rates. We assume that the switching process is a semi-Markov process with finite state space E and the modulated process is a diffusive process. We derive recursive…
Modelling multivariate extreme events is essential when extrapolating beyond the range of observed data. Parametric models that are suitable for real-world extremes must be flexible -- particularly in their ability to capture asymmetric…
We consider an interest rate model with log-normally distributed rates in the terminal measure in discrete time. Such models are used in financial practice as parametric versions of the Markov functional model, or as approximations to the…
The literature on using yield curves to forecast recessions customarily uses 10-year--three-month Treasury yield spread without verification on the pair selection. This study investigates whether the predictive ability of spread can be…
The recent financial crisis has led to so-called multi-curve models for the term structure. Here we study a multi-curve extension of short rate models where, in addition to the short rate itself, we introduce short rate spreads. In…
Over the last decade, dividends have become a standalone asset class instead of a mere side product of an equity investment. We introduce a framework based on polynomial jump-diffusions to jointly price the term structures of dividends and…
In this paper, we consider daily financial data of a collection of different stock market indices, exchange rates, and interest rates, and we analyze their multi-scaling properties by estimating a simple specification of the…
The stock market presents a challenging environment for accurately predicting future stock prices due to its intricate and ever-changing nature. However, the utilization of advanced methodologies can significantly enhance the precision of…
Hidden Markov models (HMMs) and partially observable Markov decision processes (POMDPs) form a useful tool for modeling dynamical systems. They are particularly useful for representing environments such as road networks and office…
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…
In this paper, we explore the class of the Hidden Semi-Markov Model (HSMM), a flexible extension of the popular Hidden Markov Model (HMM) that allows the underlying stochastic process to be a semi-Markov chain. HSMMs are typically used less…
The paper proposes a class of financial market models which are based on inhomogeneous telegraph processes and jump diffusions with alternating volatilities. It is assumed that the jumps occur when the tendencies and volatilities are…