Related papers: How to hedge extrapolated yield curves
Albeit of crucial interest for both financial practitioners and researchers, market-implied volatility data of European swaptions often exhibit large portions of missing quotes due to illiquidity of the various underlying swaption…
This paper describes a new method of bond portfolio optimization based on stochastic string models of correlation structure in bond returns. The paper shows how to approximate correlation function of bond returns, compute the optimal…
The mean-variance hedging (MVH) problem is studied in a partially observable market where the drift processes can only be inferred through the observation of asset or index processes. Although most of the literatures treat the MVH problem…
A method is described for the extrapolation of perturbative expansions in powers of asymptotically small coupling parameters or other variables onto the region of finite variables and even to the variables tending to infinity. The method…
This report investigates the computation of option Greeks for European and Asian options under the Heston stochastic volatility model on GPU. We first implemented the exact simulation method proposed by Broadie and Kaya and used it as a…
Pricing extremely long-dated liabilities market consistently deals with the decline in liquidity of financial instruments on long maturities. The aim is to quantify the uncertainty of rates up to maturities of a century. We assume that the…
Limited overlap between treated and control groups is a key challenge in observational analysis. Standard approaches like trimming importance weights can reduce variance but introduce a fundamental bias. We propose a sensitivity framework…
This paper addresses the problem of accurately estimating a function on one domain when only its discrete samples are available on another domain. To answer this challenge, we utilize a neural network, which we train to incorporate prior…
In this paper we present a locally and dimension-adaptive sparse grid method for interpolation and integration of high-dimensional functions with discontinuities. The proposed algorithm combines the strengths of the generalised sparse grid…
In this paper, we consider the problem of maximizing the expected discounted utility of dividend payments for an insurance company that controls risk exposure by purchasing proportional reinsurance. We assume the preference of the insurer…
An extrapolation method in shell model calculations with deformed basis is presented, which uses a scaling property of energy and energy variance for a series of systematically approximated wave functions to the true one. Such approximated…
The incorporation of a dividend yield in the classical option pricing model of Black- Scholes results in a minor modification of the Black-Scholes formula, since the lognormal dynamic of the underlying asset is preserved. However, market…
We give an efficient algorithm to compute equations of twists of hyperelliptic curves of arbitrary genus over any separable field (of characteristic different from 2), and we explicitly describe some interesting examples.
We consider fitting a bivariate spline regression model to data using a weighted least-squares cost function, with weights that sum to one to form a discrete probability distribution. By applying the principle of maximum entropy, the weight…
Building on the functional-analytic framework of operator-valued kernels and un-truncated signature kernels, we propose a scalable, provably convergent signature-based algorithm for a broad class of high-dimensional, path-dependent hedging…
Most representative decision tree ensemble methods have been used to examine the variable importance of Treasury term spreads to predict US economic recessions with a balance of generating rules for US economic recession detection. A…
We consider the pricing and hedging of exotic options in a model-independent set-up using \emph{shortfall risk and quantiles}. We assume that the marginal distributions at certain times are given. This is tantamount to calibrating the model…
A new approach for functional data description is proposed in this paper. It consists of a regression model with a discrete hidden logistic process which is adapted for modeling curves with abrupt or smooth regime changes. The model…
When interest rate dynamics are described by the Libor Market Model as in BGM97, we show how some essential risk-management results can be obtained from the dual of the calibration program. In particular, if the objetive is to maximize…
Derivatives, as a critical class of financial instruments, isolate and trade the price attributes of risk assets such as stocks, commodities, and indices, aiding risk management and enhancing market efficiency. However, traditional hedging…