Related papers: On the range of admissible term-structures
The desirable gambles framework provides a foundational approach to imprecise probability theory but relies heavily on linear utility assumptions. This paper introduces function-coherent gambles, a generalization that accommodates…
Robust yield curve estimation is crucial in fixed-income markets for accurate instrument pricing, effective risk management, and informed trading strategies. Traditional approaches, including the bootstrapping method and parametric…
Adaptive confidence intervals for regression functions are constructed under shape constraints of monotonicity and convexity. A natural benchmark is established for the minimum expected length of confidence intervals at a given function in…
The term structure of credit spreads is studied with an aim to predict its future movements. A completely new approach to tackle this problem is presented, which utilizes nonlinear parametric models. The Brain-Cousens regression model with…
Recently, incomplete-market techniques have been used to develop a model applicable to credit default swaps (CDSs) with results obtained that are quite different from those obtained using the market-standard model. This article makes use of…
We investigate a long-debated question, which is how to create predictive models of recidivism that are sufficiently accurate, transparent, and interpretable to use for decision-making. This question is complicated as these models are used…
We establish a profound connection between coherent risk measures, a prominent object in quantitative finance, and uniform integrability, a fundamental concept in probability theory. Instead of working with absolute values of random…
The additive process generalizes the L\'evy process by relaxing its assumption of time-homogeneous increments and hence covers a larger family of stochastic processes. Recent research in option pricing shows that modeling the underlying log…
Transition risk can be defined as the business-risk related to the enactment of green policies, aimed at driving the society towards a sustainable and low-carbon economy. In particular, the value of certain firms' assets can be lower…
We investigate the joint description of the interest-rate term stuctures of Italy and an AAA-rated European country by mean of a --here proposed-- correlated CIR-like bivariate model where one of the state variables is interpreted as a…
We consider derivatives written on multiple underlyings in a one-period financial market, and we are interested in the computation of model-free upper and lower bounds for their arbitrage-free prices. We work in a completely realistic…
Interpretability analysis methods for artificial intelligence models, such as LIME and SHAP, are widely used, though they primarily serve as post-model for analyzing model outputs. While it is commonly believed that the transparency and…
Explicitly taking into account the risk incurred when borrowing at a shorter tenor versus lending at a longer tenor ("roll-over risk"), we construct a stochastic model framework for the term structure of interest rates in which a frequency…
In this short paper, we study the simulation of a large system of stochastic processes subject to a common driving noise and fast mean-reverting stochastic volatilities. This model may be used to describe the firm values of a large pool of…
We study risk-neutral density extraction from short-dated option chains. As expiry approaches, option premia decline and bid--ask spreads can be large relative to prices, making mid quotes particularly uninformative. Stale or asynchronous…
Level, slope, and curvature are three commonly-believed principal components in interest rate term structure and are thus widely used in modeling. This paper characterizes the heterogeneity of how misspecified such models are through time.…
This article proposes a calibration framework for complex option pricing models that jointly fits market option prices and the term structure of variance. Calibrated models under the conventional objective function, the sum of squared…
We investigate default-free bond markets where the standard relationship between a possibly existing bank account process and the term structure of bond prices is broken, i.e. the bank account process is not a valid num\'eraire. We argue…
In this paper we provide the characterization of all finite-dimensional Heath--Jarrow--Morton models that admit arbitrary initial yield curves. It is well known that affine term structure models with time-dependent coefficients (such as the…
A major requirement for credit scoring models is to provide a maximally accurate risk prediction. Additionally, regulators demand these models to be transparent and auditable. Thus, in credit scoring, very simple predictive models such as…