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The Constant Elasticity of Variance (CEV) model is mathematically presented and then used in a Credit-Equity hybrid framework. Next, we propose extensions to the CEV model with default: firstly by adding a stochastic volatility diffusion…
We provide analytical pricing formula of corporate defaultable bond with both expected and unexpected default in the case with stochastic default intensity. In the case with constant short rate and exogenous default recovery using PDE…
We propose a unifying framework for the pricing of debt securities under general time-inhomogeneous short-rate diffusion processes. The pricing of bonds, bond options, callable/putable bonds, and convertible bonds (CBs) is covered. Using…
We address the modelling of commodities that are supposed to have positive price but, on account of a possible failure in the physical delivery mechanism, may turn out not to. This is done by explicitly incorporating a `delivery liability'…
I develop and estimate a dynamic equilibrium model of risky entrepreneurs' borrowing and savings decisions incorporating both formal and local-informal credit markets. Households have access to an exogenous formal credit market and to an…
An equiangular tight frame (ETF) is a set of unit vectors whose coherence achieves the Welch bound, and so is as incoherent as possible. They arise in numerous applications. It is well known that real ETFs are equivalent to a certain…
In the present paper we show that the Binomial-tree approach for pricing, hedging, and risk assessment of Convertible bonds in the framework of the Tsiveriotis-Fernandes model has serious drawbacks. Key words: Convertible bonds, Binomial…
In this paper we consider the problem of inference on a class of sets describing a collection of admissible models as solutions to a single smooth inequality. Classical and recent examples include, among others, the Hansen-Jagannathan (HJ)…
Based on the quarterly data from 26 advanced economies (AEs) and 18 emerging market economies (EMs) over the past two decades, this paper estimates the short- and medium-term impacts of financial cycles on the duration and amplitude of…
We introduce a theory of stochastic integration with respect to a family of semimartingales depending on a continuous parameter, as a mathematical background to the theory of bond markets. We apply our results to the problem of…
This work studies the valuation of currency options in markets suffering from a financial crisis. We consider a European option where the underlying asset is a foreign currency. We assume that the value of the underlying asset is a…
This paper develops a deep learning-based framework for pricing convertible bonds with path-dependent contractual features, namely downward conversion price reset and issuer call clauses under rolling-window trigger rules, which are…
Exponential L\'evy processes have been used for modelling financial derivatives because of their ability to exhibit many empirical features of markets. Using their multidimensional analogue, a general analytic pricing formula is obtained,…
Deep hedging is a deep-learning-based framework for derivative hedging in incomplete markets. The advantage of deep hedging lies in its ability to handle various realistic market conditions, such as market frictions, which are challenging…
We introduce a regularization approach to arbitrage-free factor-model selection. The considered model selection problem seeks to learn the closest arbitrage-free HJM-type model to any prespecified factor-model. An asymptotic solution to…
Experimental results on market behavior establish a lower stability and efficiency of markets for durable re-tradable assets compared to markets for non-durable, or perishable, goods. In this chapter, we revisit this known but…
We consider the problem of hedging a European interest rate contingent claim with a portfolio of zero-coupon bonds and show that an HJM type Markovian model driven by an infinite number of sources of randomness does not have some of the…
We consider a consumption-investment problem (both on finite and infinite time horizon) in which the investor has an access to the bond market. In our approach prices of bonds with different maturities are described by the general HJM…
We model bond's price curves corresponding to the sovereign uruguayan debt nominated in USD, as an alternative to the official bond prices publication released by the Central Bank of Uruguay (CBU). Four different gaussian models are fitted,…
Transition risk can be defined as the business-risk related to the enactment of green policies, aimed at driving the society towards a sustainable and low-carbon economy. In particular, the value of certain firms' assets can be lower…