Related papers: Interest Rate Dynamics and Commodity Prices

We consider a market model that consists of financial investors and producers of a commodity. Producers optionally store some production for future sale and go short on forward contracts to hedge the uncertainty of the future commodity…

We develop a medium-size semi-structural time series model of inflation dynamics that is consistent with the view - often expressed by central banks - that three components are important: a trend anchored by long-run expectations, a…

In this survey paper we discuss recent advances on short interest rate models which can be formulated in terms of a stochastic differential equation for the instantaneous interest rate (also called short rate) or a system of such equations…

Most finance studies are discussed on the basis of several hypotheses, for example, investors rationally optimize their investment strategies. However, the hypotheses themselves are sometimes criticized. Market impacts, where trades of…

Accuracy of economic theories and efficiency of economic policy strictly depend on the choice of the economic variables and processes mostly liable for description of economic reality. That states the general problem of assessment of any…

In the over-the-counter market in derivatives, we sometimes see large numbers of traders taking the same position and risk. When there is this kind of concentration in the market, the position impacts the pricings of all other derivatives…

The market practice of extrapolating different term structures from different instruments lacks a rigorous justification in terms of cash flows structure and market observables. In this paper, we integrate our previous consistent theory for…

Scaling properties in financial fluctuations are reviewed from the standpoint of statistical physics. We firstly show theoretically that the balance of demand and supply enhances fluctuations due to the underlying phase transition…

Constant and symmetric price impact functions, most commonly used in agent-based market modelling, are shown to give rise to paradoxical and inconsistent outcomes in the simplest case of arbitrage exploitation when open-hold-close actions…

We consider a market where many agents trade many different types of products with each other. We model development of collective modes in this market, and quantify these by fluctuations that scale with time with a Hurst exponent of about…

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…

Pricing decisions are often made when market information is still poor. In turn, existing theoretical models often reason about the response of optimal prices to changing market characteristics without exploiting all available information…

We develop a model to price inflation and interest rates derivatives using continuous-time dynamics that have some links with macroeconomic monetary DSGE models equipped with a Taylor rule: in particular, the reaction function of the…

This paper investigates how dispersion in banks' subjective inflation forecasts is a channel of the transmission of monetary policy to credit supply. We extend the Monti-Klein model of monopolistic banking by incorporating risk aversion,…

We study a credit risk model which captures effects of economic interactions on a firm's default probability. Economic interactions are represented as a functionally defined graph, and the existence of both cooperative, and competitive,…

A deterministic trading strategy can be regarded as a signal processing element that uses external information and past prices as inputs and incorporates them into future prices. This paper uses a market maker based method of price…

In many markets, like electricity or cloud computing markets, providers incur large costs for keeping sufficient capacity in reserve to accommodate demand fluctuations of a mostly fixed user base. These costs are significantly affected by…

We examine how monetary shocks spread throughout an economic model characterized by sticky prices and general equilibrium, where the pricing strategies of firms are interlinked, fostering a mutually beneficial relationship. In this dynamic…

In nature and human societies, the effects of homogeneous and heterogeneous characteristics on the evolution of collective behaviors are quite different from each other. It is of great importance to understand the underlying mechanisms of…

At present, there is an explosion of practical interest in the pricing of interest rate (IR) derivatives. Textbook pricing methods do not take into account the leptokurticity of the underlying IR process. In this paper, such a leptokurtic…