Related papers: How to hedge extrapolated yield curves
This paper aims to extend downside protection to a hedge fund investment portfolio based on shared loss fee structures that have become increasing popular in the market. In particular, we consider a second tranche and suggest the purchase…
We provide statistical analysis methods for samples of curves when the image but not the parametrisation of the curves is of interest. A parametrisation invariant analysis can be based on the elastic distance of the curves modulo warping,…
There is an observed basis between repo discounting, implied from market repo rates, and bond discounting, stripped from the market prices of the underlying bonds. Here, this basis is explained as a convexity effect arising from the…
Valuation adjustments are nowadays a common practice to include credit and liquidity effects in option pricing. Funding costs arising from collateral procedures, hedging strategies and taxes are added to option prices to take into account…
We apply rough-path theory to study the discrete-time gamma-hedging strategy. We show that if a trader knows that the market price of a set of European options will be given by a diffusive pricing model, then the discrete-time gamma-hedging…
This survey provides an overview of state-of-the art multirate schemes, which exploit the different time scales in the dynamics of a differential equation model by adapting the computational costs to different activity levels of the system.…
Every "x"-adjustment in the so-called xVA financial risk management framework relies on the computation of exposures. Considering thousands of Monte Carlo paths and tens of simulation steps, a financial portfolio needs to be evaluated…
Hedging methods to mitigate the exposure of variable annuity products to market risks require the calculation of market risk sensitivities (or "Greeks"). The complex, path-dependent nature of these products means these sensitivities…
This paper examines the valuation and hedging of standard equity protection swap (EPS) products proposed by Xu et al.. To account for financial crises and counterparty default risk, we develop pricing frameworks based on Merton's…
Interpolation of data on non-Euclidean spaces is an active research area fostered by its numerous applications. This work considers the Hermite interpolation problem: finding a sufficiently smooth manifold curve that interpolates a…
The purpose of this paper relies on the study of long term yield curves modeling. Inspired by the economic litterature, it provides a financial interpretation of the Ramsey rule that links discount rate and marginal utility of aggregate…
We consider the jump-diffusion risky asset model and study its conditional prediction laws. Next, we explain the conditional least square hedging strategy and calculate its closed form for the jump-diffusion model, considering the…
The term structure of interest rates (yield curve) is a critical facet of financial analytics, impacting various investment and risk management decisions. It is used by the central bank to conduct and monitor its monetary policy. That…
We derive a semi-analytical pricing formula for European VIX call options under the Heston-Hawkes stochastic volatility model introduced in arXiv:2210.15343. This arbitrage-free model incorporates the volatility clustering feature by adding…
Almost every numerical task can be cast as extrapolation with respect to the fidelity or tolerance parameters of a consistent numerical method. This perspective enables probabilistic uncertainty quantification and optimal experimental…
This paper is concerned with the study of insurance related derivatives on financial markets that are based on non-tradable underlyings, but are correlated with tradable assets. We calculate exponential utility-based indifference prices,…
In 'A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options', Heston proposes a Stochastic Volatility (SV) model with constant interest rate and derives a semi-explicit valuation formula.…
Image interpolation is a special case of image super-resolution, where the low-resolution image is directly down-sampled from its high-resolution counterpart without blurring and noise. Therefore, assumptions adopted in super-resolution…
Prepayment risk embedded in fixed-rate mortgages forms a significant fraction of a financial institution's exposure, and it receives particular attention because of the magnitude of the underlying market. The embedded prepayment option…
We present a unified framework for computing CVA sensitivities, hedging the CVA, and assessing CVA risk, using probabilistic machine learning meant as refined regression tools on simulated data, validatable by low-cost companion Monte Carlo…