Related papers: Discount Models
In the aftermath of the global financial crisis, much attention has been paid to investigating the appropriateness of the current practice of default risk modeling in banking, finance and insurance industries. A recent empirical study by…
Sparsity or complexity? In modern high-dimensional asset pricing, these are often viewed as competing principles: richer feature spaces appear to favor complexity, while economic intuition has long favored parsimony. We show that this…
In this paper we provide the characterization of all finite-dimensional Heath--Jarrow--Morton models that admit arbitrary initial yield curves. It is well known that affine term structure models with time-dependent coefficients (such as the…
The problem of existence of solution for the Heath-Jarrow-Morton equation with linear volatility and purely jump random factor is studied. Sufficient conditions for existence and non-existence of the solution in the class of bounded fields…
Information discounting plays an important role in the theory of belief functions and, generally, in information fusion. Nevertheless, neither classical uniform discounting nor contextual cannot model certain use cases, notably temporal…
We consider derivatives written on multiple underlyings in a one-period financial market, and we are interested in the computation of model-free upper and lower bounds for their arbitrage-free prices. We work in a completely realistic…
A new framework for asset pricing based on modelling the information available to market participants is presented. Each asset is characterised by the cash flows it generates. Each cash flow is expressed as a function of one or more…
The paper introduces benchmark-neutral pricing and hedging for long-term contingent claims. It employs the growth optimal portfolio of the stocks as numeraire and the new benchmark-neutral pricing measure for pricing. For a realistic…
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…
This paper develops a model of liquidity provision in financial markets by adapting the Madhavan, Richardson, and Roomans (1997) price formation model to realistic order books with quote discretization and liquidity rebates. We postulate…
This paper introduces the concept of abstracted model reduction: a framework to improve the tractability of structure-preserving methods for the complexity reduction of interconnected system models. To effectively reduce high-order,…
Dynamic pricing in high-dimensional markets poses fundamental challenges of scalability, uncertainty, and interpretability. Existing low-rank bandit formulations learn efficiently but rely on latent features that obscure how individual…
We give a comprehensive review of credit term structure modeling methodologies. The conventional approach to modeling credit term structure is summarized and shown to be equivalent to a particular type of the reduced form credit risk model,…
In this paper, using the structural approach is derived a mathematical model of the discrete coupon bond with the provision that allow the holder to demand early redemption at any coupon dates prior to the maturity and based on this model…
Discounting is an important dimension in multi-agent systems as long as we want to reason about strategies and time. It is a key aspect in economics as it captures the intuition that the far-away future is not as important as the near…
It is well known that the minimal superhedging price of a contingent claim is too high for practical use. In a continuous-time model uncertainty framework, we consider a relaxed hedging criterion based on acceptable shortfall risks.…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
This chapter presents a review of the dividend discount models starting from the basic models (Williams 1938, Gordon and Shapiro 1956) to more recent and complex models (Ghezzi and Piccardi 2003, Barbu et al. 2017, D'Amico and De Blasis…
We characterize decreasing impatience, a common behavioral phenomenon in intertemporal choice. Discount factors that display decreasing impatience are characterized through a convexit y axiom for investments at fixed interest rates. Then we…
The author seeks to develop a model to alter the bid-offer spread, currently quoted by market makers, that varies with the market and trading conditions. The dynamic nature of financial markets and trading, as with the rest of social…