Related papers: Two-factor capital structure models for equity and…
In this paper we study a reflected Markov-modulated Brownian motion with a two sided reflection in which the drift, diffusion coefficient and the two boundaries are (jointly) modulated by a finite state space irreducible continuous time…
Recursive Marginal Quantization (RMQ) allows fast approximation of solutions to stochastic differential equations in one-dimension. When applied to two factor models, RMQ is inefficient due to the fact that the optimization problem is…
Recent studies document strong empirical support for multifactor models that aim to explain the cross-sectional variation in corporate bond expected excess returns. We revisit these findings and provide evidence that common factor pricing…
We propose two structural models for stochastic losses given default which allow to model the credit losses of a portfolio of defaultable financial instruments. The credit losses are integrated into a structural model of default events…
In this paper we consider a jump-diffusion dynamic whose parameters are driven by a continuous time and stationary Markov Chain on a finite state space as a model for the underlying of European contingent claims. For this class of processes…
Efficiently pricing multi-asset options is a challenging problem in quantitative finance. When the characteristic function is available, Fourier-based methods are competitive compared to alternative techniques because the integrand in the…
Statistical and structural modeling represent two distinct approaches to data analysis. In this paper, we propose a set of novel methods for combining statistical and structural models for improved prediction and causal inference. Our first…
We consider the one-factor model of commodities for which the parameters of the model depend upon the stock price or on the time. For that model we study the existence of group-invariant transformations. When the parameters are constant,…
We provide a general and flexible approach to LIBOR modeling based on the class of affine factor processes. Our approach respects the basic economic requirement that LIBOR rates are non-negative, and the basic requirement from mathematical…
The two most popular types of graphical model are directed models (Bayesian networks) and undirected models (Markov random fields, or MRFs). Directed and undirected models offer complementary properties in model construction, expressing…
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 model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the price…
In dynamic capital structure models with an investor break-even condition, the firm's Bellman equation may not generate a contraction mapping, so the standard existence and uniqueness conditions do not apply. First, we provide an example…
In the option valuation literature, the shortcomings of one factor stochastic volatility models have traditionally been addressed by adding jumps to the stock price process. An alternate approach in the context of option pricing and…
The market practice of extrapolating different term structures from different instruments lacks a rigorous justification in terms of cash flows structure and market observables. In this paper, we integrate our previous consistent theory for…
We introduce a new class of continuous-time models of the stochastic volatility of asset prices. The models can simultaneously incorporate roughness and slowly decaying autocorrelations, including proper long memory, which are two stylized…
We provide a full classification of all attainable term structure shapes in the two-factor Vasicek model of interest rates. In particular, we show that the shapes normal, inverse, humped, dipped and hump-dip are always attainable. In…
We propose a unifying framework for the pricing of debt securities under general time-inhomogeneous short-rate diffusion processes. The pricing of bonds, bond options, callable/putable bonds, and convertible bonds (CBs) is covered. Using…
Among professionals and academics alike, it is well known that active portfolio management is unable to provide additional risk-adjusted returns relative to their benchmarks. For this reason, passive wealth management has emerged in recent…
Factor models characterize the joint behavior of large sets of financial assets through a smaller number of underlying drivers. We develop a network-based framework in which factors emerge naturally from the structure of interactions among…