Related papers: State Space Vasicek Model of a Longevity Bond
The increasing life expectancy enhances the importance of mortality forecasting. Most developing nations, including Tanzania, forecast mortality rates using static life tables. However, these tables exaggerate death probabilities by…
Demographic projections of future mortality rates involve a high level of uncertainty and require stochastic mortality models. The current paper investigates forward mortality models driven by a (possibly infinite dimensional) Wiener…
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…
In the analysis of commodity futures, it is commonly assumed that futures prices are driven by two latent factors: short-term fluctuations and long-term equilibrium price levels. In this study, we extend this framework by introducing a…
We propose a characteristics-augmented quantile factor (QCF) model, where unknown factor loading functions are linked to a large set of observed individual-level (e.g., bond- or stock-specific) covariates via a single-index projection. The…
This paper develops a continuous-time filtering framework for estimating a hazard rate subject to an unobservable change-point. This framework naturally arises in both financial and insurance applications, where the default intensity of a…
The notion of a credit spread curve is fundamental in fixed income investing, but in practice it is not `given' and needs to be constructed from bond prices either for a particular issuer, or for a sector rating-by-rating. Rather than…
No-arbitrage models of term structure have the feature that the return on zero-coupon bonds is the sum of the short rate and the product of volatility and market price of risk. Well known models restrict the behavior of the market price of…
Trends in human longevity are puzzling, especially when considering the limits of human longevity. Partially, the conflicting assertions are based upon demographic evidence and the interpretation of survival and mortality curves using the…
In this paper, a finite-state mean-reverting model for the short-rate, based on the continuous time Ehrenfest process, will be examined. Two explicit pricing formulae for zero-coupon bonds will be derived in the general and the special…
Accurate forecasting of zero coupon bond yields for a continuum of maturities is paramount to bond portfolio management and derivative security pricing. Yet a universal model for yield curve forecasting has been elusive, and prior attempts…
This paper considers general term structure models like the ones appearing in portfolio credit risk modelling or life insurance. We give a general model starting from families of forward rates driven by infinitely many Brownian motions and…
Estimating lifetime probabilities of default (PDs) under IFRS~9 and CECL requires projecting point--in--time transition matrices over multiple years. A persistent weakness is that macroeconomic forecast errors compound across horizons,…
In a market with stochastic interest rates, we consider an investor who can either (i) invest all if his money in a savings account or (ii) purchase zero-coupon bonds and invest the remainder of his wealth in a savings account. The…
Pension schemes all over the world are under increasing pressure to efficiently hedge the longevity risk posed by ageing populations. In this work, we study an optimal investment problem for a defined contribution pension scheme which…
We propose a parsimonious class of arbitrage-free, yields-only dynamic term structure models (DTSMs) with unspanned latent risks. To enable sequential estimation and forecasting, we develop a Sequential Monte Carlo framework that combines…
We present an arbitrage-free non-parametric yield curve prediction model which takes the full (discretized) yield curve as state variable. We believe that absence of arbitrage is an important model feature in case of highly correlated data,…
How long people live depends on their health, and how it changes with age. Individual health can be tracked by the accumulation of age-related health deficits. The fraction of age-related deficits is a simple quantitative measure of human…
In the Vasicek credit portfolio model, tail risk is driven primarily by the asset-correlation parameter, yet empirically is subject to correlation risk. We propose a stochastic correlation extension of the Vasicek framework in which the…
Pricing formulae for defaultable corporate bonds with discrete coupons under consideration of the government taxes in the united model of structural and reduced form models are provided. The aim of this paper is to generalize the…