Related papers: Ambiguity in defaultable term structure models
In this paper we give a financial justification, based on non arbitrage conditions, of the $(H)$ hypothesis in default time modelling. We also show how the $(H)$ hypothesis is affected by an equivalent change of probability measure. The…
We introduce a new stochastic duration model for transaction times in asset markets. We argue that widely accepted rules for aggregating seemingly related trades mislead inference pertaining to durations between unrelated trades: while any…
We consider a market model where there are two levels of information. The public information generated by the financial assets, and a larger flow of information that contains additional knowledge about a random time. This random time can…
In this work, we identify the most general measure of arbitrage for any market model governed by It\^o processes. We show that our arbitrage measure is invariant under changes of num\'{e}raire and equivalent probability. Moreover, such…
We study the pricing problem for corporate defaultable bond from the viewpoint of the investors outside the firm that could not exactly know about the information of the firm. We consider the problem for pricing of corporate defaultable…
The determination of acceptability prices of contingent claims requires the choice of a stochastic model for the underlying asset price dynamics. Given this model, optimal bid and ask prices can be found by stochastic optimization. However,…
We develop robust pricing and hedging of a weighted variance swap when market prices for a finite number of co--maturing put options are given. We assume the given prices do not admit arbitrage and deduce no-arbitrage bounds on the weighted…
This work considers a stochastic model in which the uncertainty is driven by a multidimensional Brownian motion. The market price of risk process makes the transition between real world probability measure and risk neutral probability…
The authors examine the concept of probability of default for asset-backed loans. In contrast to unsecured loans it is shown that probability of default can be defined as either a measure of the likelihood of the borrower failing to make…
In this work we introduce Heath-Jarrow-Morton (HJM) interest rate models driven by fractional Brownian motions. By using support arguments we prove that the resulting model is arbitrage free under proportional transaction costs in the same…
We show that the existence of an equivalent local martingale measure for asset prices does not prevent negative prices for European calls written on positive stock prices. In particular, we illustrate that many standard no-arbitrage…
The risk premium is one of main concepts in mathematical finance. It is a measure of the trade-offs investors make between return and risk and is defined by the excess return relative to the risk-free interest rate that is earned from an…
Filiz et al. (2008) proposed a model for the pattern of defaults seen among a group of firms at the end of a given time period. The ingredients in the model are a graph, where the vertices correspond to the firms and the edges describe the…
Managing risk at the aggregate level is crucial for banks and financial institutions as required by the Basel III framework. In this paper, we introduce discrete time Bayesian state space models with Poisson measurements to model aggregate…
Conventional models of matching markets assume that monetary transfers can clear markets by compensating for utility differentials. However, empirical patterns show that such transfers often fail to close structural preference gaps. This…
We develop a one-dimensional notion of affine processes under parameter uncertainty, which we call non-linear affine processes. This is done as follows: given a set of parameters for the process, we construct a corresponding non-linear…
We develop a new semantics for defeasible inference based on extended probability measures allowed to take infinitesimal values, on the interpretation of defaults as generalized conditional probability constraints and on a preferred-model…
We develop an arbitrage-free deep learning framework for yield curve and bond price forecasting based on the Heath-Jarrow-Morton (HJM) term-structure model and a dynamic Nelson-Siegel parameterization of forward rates. Our approach embeds a…
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…
We investigate the phenomenon of non-recursive trade-offs between descriptional systems in an abstract fashion. We aim at categorizing non-recursive trade-offs by bounds on their growth rate, and show how to deduce such bounds in general.…