Related papers: How to hedge extrapolated yield curves
The objective of the present paper is to analyse various features of the Smith-Wilson method used for discounting under the EU regulation Solvency II, with special attention to hedging. In particular, we show that all key rate duration…
By adopting the polynomial interpolation method, we propose an approach to hedge against the interest-rate risk of the default-free bonds by measuring the nonparallel movement of the yield-curve, such as the translation, the rotation and…
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…
We propose two variants of the Smith-Wilson method for practical application in the insurance industry. Our first variant relaxes the Smith-Wilson energy and can be used to incorporate less reliable market data with a certain weight rather…
Hedging strategies in bond markets are computed by martingale representation and the Clark-Ocone formula under the choice of a suitable of numeraire, in a model driven by the dynamics of bond prices. Applications are given to the hedging of…
We propose a general framework for modeling multiple yield curves which have emerged after the last financial crisis. In a general semimartingale setting, we provide an HJM approach to model the term structure of multiplicative spreads…
The crisis that affected financial markets in the last years leaded market practitioners to revise well known basic concepts like the ones of discount factors and forward rates. A single yield curve is not sufficient any longer to describe…
This paper studies the application of machine learning in extracting the market implied features from historical risk neutral corporate bond yields. We consider the example of a hypothetical illiquid fixed income market. After choosing a…
We present a HJM approach to the projection of multiple yield curves developed to capture the volatility content of historical term structures for risk management purposes. Since we observe the empirical data at daily frequency and only for…
This manuscript introduces deep learning models that simultaneously describe the dynamics of several yield curves. We aim to learn the dependence structure among the different yield curves induced by the globalization of financial markets…
We introduce a technique to estimate a linear operator by embedding it in a family $A_t$ of operators, $t\in(\sigma_0,\infty)$, with suitable curvature properties. One can then estimate the norm of each $A_t$ by bounds that hold in the…
Yield curve modeling is an essential problem in finance. In this work, we explore the use of Bayesian statistical methods in conjunction with Nelson-Siegel model. We present the hierarchical Bayesian model for the parameters of the…
In this paper, we explore the pricing and hedging strategies for an innovative insurance product called the equity protection swap(EPS). Notably, we focus on the application of EPSs involving cross-currency reference portfolios, reflecting…
In the framework of risk management, for the study of the sensitivity of pricing and hedging in stochastic financial models to changes of parameters and to perturbations of the stock prices, we propose an error calculus which is an…
We provide a general and tractable framework under which all multiple yield curve modeling approaches based on affine processes, be it short rate, Libor market, or HJM modeling, can be consolidated. We model a numeraire process and…
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…
Recently, quantum corrections to optical conductivity of disordered metals up to the UV region were observed. Although this increase of conductivity with frequency, also called anti-Drude behaviour, should disappear at the electron…
How should financial institutions hedge their balance sheets against interest rate risk when managing long-term assets and liabilities? We address this question by proposing a bond portfolio solution based on ambiguity-averse preferences,…
US Yield curve has recently collapsed to its most flattened level since subprime crisis and is close to the inversion. This fact has gathered attention of investors around the world and revived the discussion of proper modeling and…
We consider a semimartingale market model when the underlying diffusion has a singular volatility matrix and compute the hedging portfolio for a given payoff function. Recently, the representation problem for such degenerate diffusions with…