Related papers: Corrected XVA Modelling Framework and Formulae for…
New versions of the set-valued average value at risk for multivariate risks are introduced by generalizing the well-known certainty equivalent representation to the set-valued case. The first "regulator" version is independent from any…
We illustrate a problem in the self-financing condition used in the papers "Funding beyond discounting: collateral agreements and derivatives pricing" (Risk Magazine, February 2010) and "Partial Differential Equation Representations of…
Estimating the covariance of asset returns, i.e., the risk model, is a key component of financial portfolio construction and evaluation. Most risk modeling approaches produce a factor model that decomposes the asset variability into two…
This paper proposes a semiparametric stochastic volatility (SV) model that relaxes the restrictive Gaussian assumption in both the return and volatility error terms, allowing them to follow flexible, nonparametric distributions with…
Local Stochastic Volatility (LSV) models have been used for pricing and hedging derivatives positions for over twenty years. An enormous body of literature covers analytical and numerical techniques for calibrating the model to market data.…
We study historical calibration of one- and two-factor models that are known to describe relatively well the dynamics of energy underlyings such as spot and index natural gas or oil prices at different physical locations or regional power…
Exposure simulations are fundamental to many xVA calculations and are a nested expectation problem where repeated portfolio valuations create a significant computational expense. Sensitivity calculations which require shocked and unshocked…
An asset pricing model using long-run capital share growth risk has recently been found to successfully explain U.S. stock returns. Our paper adopts a recursive preference utility framework to derive an heterogeneous asset pricing model…
We present a methodology for model evaluation and selection where the sampling mechanism violates the i.i.d. assumption. Our methodology involves a formulation of the bias between the standard Cross-Validation (CV) estimator and the mean…
As increasingly popular metrics of worker and institutional quality, estimated value-added (VA) measures are now widely used as dependent or explanatory variables in regressions. For example, VA is used as an explanatory variable when…
This paper shows how to recover a stochastic volatility model (SVM) from a market model of the VIX futures term structure. Market models have more flexibility for fitting of curves than do SVMs, and therefore are better suited for pricing…
Generalized cross-validation (GCV) is a widely-used method for estimating the squared out-of-sample prediction risk that employs a scalar degrees of freedom adjustment (in a multiplicative sense) to the squared training error. In this…
We focus on two particular aspects of model risk: the inability of a chosen model to fit observed market prices at a given point in time (calibration error) and the model risk due to recalibration of model parameters (in contradiction to…
In previous works Avellaneda et al. pioneered the pricing and hedging of index options - products highly sensitive to implied volatility and correlation assumptions - with large deviations methods, assuming local volatility dynamics for all…
The aim of this thesis is to analyze and renovate few main-stream models on inflation derivatives. In the first chapter of the thesis, concepts of financial instruments and fundamental terms are introduced, such as coupon bond,…
This article's aim is to provide the solution to the equity premium puzzle without using calibrated values. Calibrated values of subjective time discount factor were used in my prior derived models because 4 variables were determined from 3…
We propose a very efficient method for pricing various types of lookback options under Markov models. We utilize the model-free representations of lookback option prices as integrals of first passage probabilities. We combine efficient…
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,…
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…
We extend the "probability-equivalent level of VaR and CoVaR" (PELCoV) methodology to accommodate bivariate risks modeled by a Student-t copula, relaxing the strong dependence assumptions of earlier approaches and enhancing the framework's…