Related papers: Polynomial term structure models
This paper introduces a novel stochastic model for credit spreads. The stochastic approach leverages the diffusion of default intensities via a CIR++ model and is formulated within a risk-neutral probability space. Our research primarily…
In this paper we provide an extensive classification of one and two dimensional diffusion processes which admit an exact solution to the Kolmogorov (and hence Black-Scholes) equation (in terms of hypergeometric functions). By identifying…
We give a comprehensive review of credit term structure modeling methodologies. The conventional approach to modeling credit term structure is summarized and shown to be equivalent to a particular type of the reduced form credit risk model,…
We introduce a novel class of credit risk models in which the drift of the survival process of a firm is a linear function of the factors. The prices of defaultable bonds and credit default swaps (CDS) are linear-rational in the factors.…
In the first part of this note, we review and compare various instances of the notion of twisted coefficient system, a.k.a. polynomial functor, appearing in the literature. This notion hinges on how one defines the degree of a functor from…
The aim of this short note is to draw attention to a method by which the partition function and marginal probabilities for a certain class of random fields on complete graphs can be computed in polynomial time. This class includes Ising…
The market practice of extrapolating different term structures from different instruments lacks a rigorous justification in terms of cash flows structure and market observables. In this paper, we integrate our previous consistent theory for…
The behaviour of many dynamic real phenomena shows different phases, with each one following a sigmoidal type pattern. This requires studying sigmoidal curves with more than one inflection point. In this work, a diffusion process is…
Recent results of Ye and Hansen, Miltersen and Zwick show that policy iteration for one or two player (perfect information) zero-sum stochastic games, restricted to instances with a fixed discount rate, is strongly polynomial. We show that…
For a given graph whose edges are labeled with general real numbers, we consider the set of functions from the vertex set into the Euclidean plane such that the distance between the images of neighbouring vertices is equal to the…
We study mechanism design for combinatorial cost sharing. Imagine that multiple items or services are available to be shared among a set of interested agents. The outcome of a mechanism in this setting consists of an assignment, determining…
A stochastic model for pure-jump diffusion (the compound renewal process) can be used as a zero-order approximation and as a phenomenological description of tick-by-tick price fluctuations. This leads to an exact and explicit general…
In this paper, we demonstrate through the use of matrix calculus a transparent analysis of fractional inhomogeneous Markov models for life insurance where transition matrices commute. The resulting formulae are intuitive matrix…
In this paper we propose a semi-Markov modulated model of interest rates. We assume that the switching process is a semi-Markov process with finite state space E and the modulated process is a diffusive process. We derive recursive…
We propose an efficient method to evaluate callable and putable bonds under a wide class of interest rate models, including the popular short rate diffusion models, as well as their time changed versions with jumps. The method is based on…
Given a multiarrangement of hyperplanes we define a series by sums of the Hilbert series of the derivation modules of the multiarrangement. This series turns out to be a polynomial. Using this polynomial we define the characteristic…
In this paper, we price the zero-coupon bond of the extended Cox-Ingersoll-Ross model by a Dyson type formula established in one of the authors' paper Jin, Peng and Schelllhorn (2016) using Malliavin calculus. This formula provides a fast…
After the beginning of the credit and liquidity crisis, financial institutions have been considering creating a convertible-bond type contract focusing on Capital. Under the terms of this contract, a bond is converted into equity if the…
We model an informed agent with information about the future value of an asset trying to maximize profits when subjected to a transaction cost as well as a market maker tasked with setting fair transaction prices. In a single auction model,…
One may construct, for any function on the integers, an irreducible module of level zero for affine sl(2), using the values of the function as structure constants. The modules constructed using exponential-polynomial functions realise the…