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Modern evolvements of the technologies have been leading to a profound influence on the financial market. The introduction of constituents like Exchange-Traded Funds, and the wide-use of advanced technologies such as algorithmic trading,…
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…
Volatilities, in high-dimensional panels of economic time series with a dynamic factor structure on the levels or returns, typically also admit a dynamic factor decomposition. We consider a two-stage dynamic factor model method recovering…
Forward-looking correlations are of interest in different financial applications, including factor-based asset pricing, forecasting stock-price movements or pricing index options. With a focus on non-FX markets, this paper defines necessary…
Volatility clustering, long-range dependence, and non-Gaussian scaling are stylized facts of financial assets dynamics. They are ignored in the Black & Scholes framework, but have a relevant impact on the pricing of options written on…
We propose a new framework for modeling stochastic local volatility, with potential applications to modeling derivatives on interest rates, commodities, credit, equity, FX etc., as well as hybrid derivatives. Our model extends the…
Rough volatility models are very appealing because of their remarkable fit of both historical and implied volatilities. However, due to the non-Markovian and non-semimartingale nature of the volatility process, there is no simple way to…
Sustaining efficiency and stability by properly controlling the equity to asset ratio is one of the most important and difficult challenges in bank management. Due to unexpected and abrupt decline of asset values, a bank must closely…
Conditions of Stability for explicit finite difference scheme and some results of numerical analysis for a unified 2 factor model of structural and reduced form types for corporate bonds with fixed discrete coupon are provided. It seems to…
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
We present a class of flexible and tractable static factor models for the term structure of joint default probabilities, the factor copula models. These high-dimensional models remain parsimonious with pair-copula constructions, and nest…
In finance, economics and many other fields, observations in a matrix form are often observed over time. For example, many economic indicators are obtained in different countries over time. Various financial characteristics of many…
A three-dimensional extension of the structural default model with firms' values driven by correlated diffusion processes is presented. Green's function based semi-analytical methods for solving the forward calibration problem and backward…
Empirical evidence suggests that fixed income markets exhibit unspanned stochastic volatility (USV), that is, that one cannot fully hedge volatility risk solely using a portfolio of bonds. While [1] showed that no two-factor…
This paper presents a convenient framework for modeling default process and pricing derivative securities involving credit risk. The framework provides an integrated view of credit valuation adjustment by linking distance-to-default,…
We introduce the notion of quantum duplicates of an (associative, unital) algebra, motivated by the problem of constructing toy-models for quantizations of certain configuration spaces in quantum mechanics. The proposed (algebraic) model…
This paper studies the pricing problem in which the underlying asset follows a non-Markovian stochastic volatility model. Classical partial differential equation methods face significant challenges in this context, as the option prices…
The Black-Litterman model is a framework for incorporating forward-looking expert views in a portfolio optimization problem. Existing work focuses almost exclusively on single-period problems with the forecast horizon matching that of the…
This paper introduces a new semi-parametric approach to the pricing and risk management of bespoke CDO tranches, with a particular attention to bespokes that need to be mapped onto more than one reference portfolio. The only user input in…
We consider the pricing of European-style structured credit payoff in a static framework, where the underlying default times are independent given a common factor. A practical application would consist of the pricing of nth-to-default…