Related papers: Bond indifference prices and indifference yield cu…

Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient…

In most illiquid markets, there is no obvious proxy for the market price of an asset. The European corporate bond market is an archetypal example of such an illiquid market where mid-prices can only be estimated with a statistical model. In…

We consider the Bachelier model with linear price impact. Exponential utility indifference prices are studied for vanilla European options in the case where the investor is required to liquidate her position. Our main result is establishing…

Proof that under simple assumptions, such as constraints of Put-Call Parity, the probability measure for the valuation of a European option has the mean derived from the forward price which can, but does not have to be the risk-neutral one,…

This paper offers a new class of models of the term structure of interest rates. We allow each instantaneous forward rate to be driven by a different stochastic shock, constrained in such a way as to keep the forward rate curve continuous.…

We consider an individual or household endowed with an initial capital and an income, modeled as a deterministic process with a continuous drift rate. At first, we model the discounting rate as the price of a zero-coupon bond at zero under…

A version of indifference valuation of a European call option is proposed that includes statistical regularities of nonstochastic randomness. Classical relations (forward contract value and Black-Scholes formula) are obtained as particular…

We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…

Discount is the difference between the face value of a bond and its present value. I propose an arbitrage-free dynamic framework for discount models, which provides an alternative to the Heath--Jarrow--Morton framework for forward rates. I…

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…

In this paper is proposed a 2 factor structural PDE model of pricing puttable bond with credit risk and derived the analytical pricing formula. To this end, first, a 2 factor structural (PDE) model of pricing zero coupon bond with credit…

In this article, we explore a class of tractable interest rate models that have the property that the price of a zero-coupon bond can be expressed as a polynomial of a state diffusion process. Our results include a classification of all…

Income- and price-elasticity of demand quantify the responsiveness of markets to changes in income, and in prices, respectively. Under the assumptions of utility maximization and preference-independence (additive preferences), mathematical…

We revisit the problem of pricing and hedging plain vanilla single-currency interest rate derivatives using multiple distinct yield curves for market coherent estimation of discount factors and forward rates with different underlying rate…

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…

We consider a general one-factor short rate model, in which the instantaneous interest rate is driven by a univariate diffusion with time independent drift and volatility. We construct recursive formula for the coefficients of the Taylor…

Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is…

The classical derivation of the well-known Vasicek model for interest rates is reformulated in terms of the associated pricing kernel. An advantage of the pricing kernel method is that it allows one to generalize the construction to the…

Warrants with stock price dependent threshold conditions give the right to buy specially issued stocks, if the performance of the stock price satisfies some requirements. Existence of these derivatives changes the price process of the…

To the knowledge of the author, this is the first time it has been shown that interest rates that are extremely high by modern standards (100% and higher) are necessary within a zero-sum monetary system, and not just driven by greed.…