Related papers: Repo convexity
We investigate the structure of good deal bounds, which are subintervals of a no-arbitrage pricing bound, for financial market models with convex constraints as an extension of Arai and Fukasawa (2014). The upper and lower bounds of a good…
Hidden regular variation is a sub-model of multivariate regular variation and facilitates accurate estimation of joint tail probabilities. We generalize the model of hidden regular variation to what we call hidden domain of attraction. We…
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility…
We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure…
The collateral choice option gives the collateral posting party the opportunity to switch between different collateral currencies which is well-known to impact the asset price. Quantification of the option's value is of practical importance…
We present a framework on how to hedge the interest rate sensitivity of liabilities discounted by an extrapolated yield curve. The framework is based on functional analysis in that we consider the extrapolated yield curve as a functional of…
In fixed income sector, the yield curve is probably the most observed indicator by the market for trading and fifinancing purposes. A yield curve plots interest rates across different contract maturities from short end to as long as 30…
The main result of this paper is a collateralized counterparty valuation adjusted pricing equation, which allows to price a deal while taking into account credit and debit valuation adjustments (CVA, DVA) along with margining and funding…
Stylized facts can be regarded as constraints for any modeling attempt of price dynamics on a financial market, in that an empirically reasonable model has to reproduce these stylized facts at least qualitatively. The dynamics of market…
Using tools from spectral analysis, singular and regular perturbation theory, we develop a systematic method for analytically computing the approximate price of a derivative-asset. The payoff of the derivative-asset may be path-dependent.…
An investor's risk aversion is assumed to tend to infinity. In a fairly general setting, we present conditions ensuring that the respective utility indifference prices of a given contingent claim converge to its super replication price.
Statistical dynamics of financial systems is investigated, based on a model of a randomly coupled equation system driven by a stochastic Langevin force. Anticorrelations of price returns, and subdiffusion of prices is found from the model,…
Pricing extremely long-dated liabilities market consistently deals with the decline in liquidity of financial instruments on long maturities. The aim is to quantify the uncertainty of rates up to maturities of a century. We assume that the…
Rough volatility is a well-established statistical stylised fact of financial assets. This property has lead to the design and analysis of various new rough stochastic volatility models. However, most of these developments have been carried…
Extensive research shows that consumers are generally averse to price discrimination. However, instruments of differential pricing can benefit consumer surplus and alleviate inequity through targeted price discounts. This paper examines how…
The distribution of price returns for a class of uncorrelated diffusive dynamics is considered. The basic assumptions are (1) that there is a "consensus" value associated with a stock, and (2) that the rate of diffusion depends on the…
We introduce an approximation strategy for the discounted moments of a stochastic process that can, for a large class of problems, approximate the true moments. These moments appear in pricing formulas of financial products such as bonds…
This study replicates the findings of Wang et al. (2017) on reference-dependent preferences and their impact on the risk-return trade-off in the Chinese stock market, a unique context characterized by high retail investor participation,…
We propose a novel family of sales-based rebate mechanisms that induce network effects in sales of products that do not exhibit such externalities. The proposed rebate mechanisms enable the seller of a product with uncertain quality to…
In this paper we formulate a corporate bond (CB) pricing model for deriving the term structure of default probabilities (TSDP) and the recovery rate (RR) for each pair of industry factor and credit rating grade, and these derived TSDP and…