Related papers: Change of Measure in Midcurve Pricing
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Permutation approach is suggested as a method to investigate financial time series in micro scales. The method is used to see how high frequency trading in recent years has affected the micro patterns which may be seen in financial time…
We review the nature of some well-known phenomena such as volatility smiles, convexity adjustments and parallel derivative markets. We propose that the market is incomplete and postulate the existence of intrinsic risks in every contingent…
We consider the consumption-based asset pricing model, derive a new modified basic pricing equation, and present its successive approximations using the Taylor series expansions of the investor's utility during the averaging time interval.…
We derive a general multivariate theory for realised characteristics of `model-free discretisation-invariant swaps', so-called because the standard no-arbitrage assumption of martingale forward prices is sufficient to derive fair-value swap…
Risk measures for multivariate financial positions are studied in a utility-based framework. Under a certain incomplete preference relation, shortfall and divergence risk measures are defined as the optimal values of specific set…
In this paper we analyse financial implications of exchangeability and similar properties of finite dimensional random vectors. We show how these properties are reflected in prices of some basket options in view of the well-known put-call…
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Nowadays, with the availability of massive amount of trade data collected, the dynamics of the financial markets pose both a challenge and an opportunity for high frequency traders. In order to take advantage of the rapid, subtle movement…
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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…
Quanto options allow the buyer to exchange the foreign currency payoff into the domestic currency at a fixed exchange rate. We investigate quanto options with multiple underlying assets valued in different foreign currencies each with a…
In this paper we introduce a class of information-based models for the pricing of fixed-income securities. We consider a set of continuous- time information processes that describe the flow of information about market factors in a monetary…
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In the paper, we devote to defining an available measure to quantify the nonbilocal correlation in the entanglement-swapping experiment. Then we obtain analytical formulas to calculate the quantifier when the inputs are pure states. For the…
We study a variant of the Cont-Bouchaud model which utilizes the perco lation approach of multi-agent simulations of the stock market fluctuations. Here, instead of considering the relative price change as the difference of the total demand…
The phenomenology of the forward rate curve (FRC) can be accurately understood by the fluctuations of a stiff elastic string (Le Coz and Bouchaud, 2024). By relating the exogenous shocks driving such fluctuations to the surprises in the…
We propose a formulation of the term structure of interest rates in which the forward curve is seen as the deformation of a string. We derive the general condition that the partial differential equations governing the motion of such string…
In this article, we investigate whether exchange rate risk is priced. We use a multivariate GARCH-in-Mean specification and test alternative conditional international CAPM versions. Our results support strongly the international…
This paper introduces a dynamic change of measure approach for computing the analytical solutions of expected future prices (and therefore, expected returns) of contingent claims over a finite horizon. The new approach constructs hybrid…