Related papers: CoCo Bonds Valuation with Equity- and Credit-Calib…
We consider a financial market in which two securities are traded: a stock and an index. Their prices are assumed to satisfy the Black-Scholes model. Besides assuming that the index is a tradable security, we also assume that it is…
We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump--diffusion process for the risk factors, i.e. for the company assets. We also include correlations…
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…
This paper develops a deep learning-based framework for pricing convertible bonds with path-dependent contractual features, namely downward conversion price reset and issuer call clauses under rolling-window trigger rules, which are…
We derive a closed-form formula for computing bond prices between coupon payments. Our results cover both the `Treasury' and the `Street' pricing methods used by sovereign and corporate issuers. We apply our formulas to two UK gilts, the 8%…
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…
This study deals with the pricing and hedging of single-tranche collateralized debt obligations (STCDOs). We specify an affine two-factor model in which a catastrophic risk component is incorporated. Apart from being analytically tractable,…
We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…
The strengthening of capital requirements has induced banks and traders to consider charging a so called capital valuation adjustment (KVA) to the clients in OTC transactions. This roughly corresponds to charge the clients ex-ante the…
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,…
The credit crisis of 2007 and 2008 has thrown much focus on the models used to price mortgage backed securities. Many institutions have relied heavily on the credit ratings provided by credit agency. The relationships between management of…
We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have…
We present an approach to market-consistent multi-period valuation of insurance liability cash flows based on a two-stage valuation procedure. First, a portfolio of traded financial instrument aimed at replicating the liability cash flow is…
Quantum computers are not yet up to the task of providing computational advantages for practical stochastic diffusion models commonly used by financial analysts. In this paper we introduce a class of stochastic processes that are both…
Affine term structure models have gained significant attention in the finance literature, mainly due to their analytical tractability and statistical flexibility. The aim of this article is to present both theoretical foundations as well as…
We study the upper hedging price for contingent claims in market models with strong types of arbitrage: increasing profit, strong arbitrage, and arbitrage of the first kind. The existence of arbitrage may make the price smaller than if it…
The collateral choice option allows a collateral-posting party the opportunity to change the type of security in which the collateral is deposited. Due to non-zero collateral basis spreads, this optionality significantly impacts asset…
A negative basis trade enters a long bond position and buys protection on the issuer of the bond through credit default swap (CDS), aiming at arbitrage profit due to the bond-CDS basis. To classic reduced form model theorists, the existence…
In this paper we introduce a class of information-based models for the pricing of fixed-income securities. We consider a set of continuous- time information processes that describe the flow of information about market factors in a monetary…
In this work we develop a tractable structural model with analytical default probabilities depending on a random default barrier and possibly random volatility ideally associated with a scenario based underlying firm debt. We show how to…