Related papers: Mid-price estimation for European corporate bonds:…
We propose an option approach for pricing bond illiquidity that is reminiscent of the celebrated work of Longstaff (1995) on the non-marketability of some non-dividend-paying shares in IPOs. This approach describes a quite common situation…
For the last two decades, most financial markets have undergone an evolution toward electronification. The market for corporate bonds is one of the last major financial markets to follow this unavoidable path. Traditionally quote-driven…
The process of liquidity provision in financial markets can result in prolonged exposure to illiquid instruments for market makers. In this case, where a proprietary position is not desired, pro-actively targeting the right client who is…
A corporate bond trader in a typical sell side institution such as a bank provides liquidity to the market participants by buying/selling securities and maintaining an inventory. Upon receiving a request for a buy/sell price quote (RFQ),…
A statistical decision problem is hidden in the core of option pricing. A simple form for the price C of a European call option is obtained via the minimum Bayes risk, R_B, of a 2-parameter estimation problem, thus justifying calling C…
In this paper incomplete-information models are developed for the pricing of securities in a stochastic interest rate setting. In particular we consider credit-risky assets that may include random recovery upon default. The market…
We introduce a new model for pricing corporate bonds, which is a modification of the classical model of Merton. In this new model, we drop the liquidity assumption of the firm's asset value process, and assume that there is a liquidly…
This study introduces a new technique to recover the implicit discount factor in the derivative market using only European put and call prices: this discount is grounded in actual transactions in active markets. Moreover, this study…
We consider arbitrage free valuation of European options in Black-Scholes and Merton markets, where the general structure of the market is known, however the specific parameters are not known. In order to reflect this subjective uncertainty…
In corporate bond markets, which are mainly OTC markets, market makers play a central role by providing bid and ask prices for a large number of bonds to asset managers from all around the globe. Determining the optimal bid and ask quotes…
The paper summarizes key results of the benchmark approach with a focus on the concept of benchmark-neutral pricing. It applies these results to the pricing of an extreme-maturity European put option on a well-diversified stock index. The…
CDS (credit default swap) contracts that were initiated some time ago frequently have spreads and/or maturities that are not available on the current market of CDSs, and are thus illiquid. This article introduces an incomplete-market…
This paper extends an option-theoretic approach to estimate liquidity spreads for corporate bonds. Inspired by Longstaff's equity market framework and subsequent work by Koziol and Sauerbier on risk-free zero-coupon bonds, the model views…
This paper studies the application of machine learning in extracting the market implied features from historical risk neutral corporate bond yields. We consider the example of a hypothetical illiquid fixed income market. After choosing a…
The prediction of financial markets is a challenging yet important task. In modern electronically-driven markets, traditional time-series econometric methods often appear incapable of capturing the true complexity of the multi-level…
This paper examines how risk and budget limits on investment mandates affect the bidding strategy in a uniform-price auction for issuing corporate bonds. I prove the existence of symmetric Bayesian Nash equilibrium and explore how the risk…
The European power grid can be divided into several market areas where the price of electricity is determined in a day-ahead auction. Market participants can provide continuous hourly bid curves and combinatorial bids with associated…
We derive a closed-form formula for computing bond prices between coupon payments. Our results cover both the `Treasury' and the `Street' pricing methods used by sovereign and corporate issuers. We apply our formulas to two UK gilts, the 8%…
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…
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…