Related papers: A pure-jump mean-reverting short rate model
We consider a model for interest rates, where the short rate is given by a time-homogenous, one-dimensional affine process in the sense of Duffie, Filipovic and Schachermayer. We show that in such a model yield curves can only be normal,…
This paper presents the solution to a European option pricing problem by considering a regime-switching jump diffusion model of the underlying financial asset price dynamics. The regimes are assumed to be the results of an observed pure…
This paper proposes a target zones exchange rate model with a terminal condition of entering a currency zone. It is assumed that the exchange rate is a function of the fundamental and time. Another essential assumptions of the model is that…
We analyze the problem of the analytical characterization of the probability distribution of financial returns in the exponential Ornstein-Uhlenbeck model with stochastic volatility. In this model the prices are driven by a Geometric…
The article is devoted to models of financial markets with stochastic volatility, which is defined by a functional of Ornstein-Uhlenbeck process or Cox-Ingersoll-Ross process. We study the question of exact price of European option. The…
We refer by threshold Ornstein-Uhlenbeck to a continuous-time threshold autoregressive process. It follows the Ornstein-Uhlenbeck dynamics when above or below a fixed level, yet at this level (threshold) its coefficients can be…
When prices reflect all available information, they oscillate around an equilibrium level. This oscillation is the result of the temporary market impact caused by waves of buyers and sellers. This price behavior can be approximated through…
We describe a model for evolving commodity forward prices that incorporates three important dynamics which appear in many commodity markets: mean reversion in spot prices and the resulting Samuelson effect on volatility term structure,…
We investigate the problem of pricing derivatives under a fractional stochastic volatility model. We obtain an approximate expression of the derivative price where the stochastic volatility can be composed of deterministic functions of time…
We propose a general framework of European power option pricing under two different market assumptions about extended Vasic\v{e}k interest rate process and exponential Ornstein-Uhlenbeck asset process with continuous dividend as underlying,…
Consider the problem of pricing options on forwards in energy markets, when spot prices follow a geometric multi-factor model in which several rates of mean reversion appear. In this paper we investigate the role played by slow mean…
By using absolutely continuous lower bounds of the L\'evy measure, explicit gradient estimates are derived for the semigroup of the corresponding L\'evy process with a linear drift. A derivative formula is presented for the conditional…
The Ornstein-Uhlenbeck (OU) process, a mean-reverting stochastic process, has been widely applied as a time series model in various domains. This paper describes the design and implementation of a model-based synthetic time series model…
This paper presents a novel one-factor stochastic volatility model where the instantaneous volatility of the asset log-return is a diffusion with a quadratic drift and a linear dispersion function. The instantaneous volatility mean reverts…
We conduct a preliminary analysis of a pairs trading strategy using the Ornstein-Uhlenbeck (OU) process to model stock price spreads. We compare this approach to a naive pairs trading strategy that uses a rolling window to calculate mean…
We consider the multivariate point process determined by the crossing times of the components of a multivariate jump process through a multivariate boundary, assuming to reset each component to an initial value after its boundary crossing.…
The crisis that affected financial markets in the last years leaded market practitioners to revise well known basic concepts like the ones of discount factors and forward rates. A single yield curve is not sufficient any longer to describe…
We consider a transformed Ornstein-Uhlenbeck process model that can be a good candidate for modelling real-life processes characterized by a combination of time-reverting behaviour with heavy distribution tails. We begin with presenting the…
A stochastic model for pure-jump diffusion (the compound renewal process) can be used as a zero-order approximation and as a phenomenological description of tick-by-tick price fluctuations. This leads to an exact and explicit general…
Motivated by empirical evidence from the joint behavior of realized volatility time series, we propose to model the joint dynamics of log-volatilities using a multivariate fractional Ornstein-Uhlenbeck process. This model is a multivariate…