Related papers: Cross-Currency Basis Swaps Referencing Backward-Lo…
This paper studies a valuation framework for financial contracts subject to reference and counterparty default risks with collateralization requirement. We propose a fixed point approach to analyze the mark-to-market contract value with…
This article presents a new model for valuing a credit default swap (CDS) contract that is affected by multiple credit risks of the buyer, seller and reference entity. We show that default dependency has a significant impact on asset…
American and Bermudan-type financial instruments are often priced with specific Monte Carlo techniques whose efficiency critically depends on the effective dimensionality of the problem and the available computational power. In our work we…
We present a thorough empirical study on real interest rates by also including risk aversion through the introduction of the market price of risk. With the view of complex systems science and its multidisciplinary approach, we use the…
In this note we sketch an initial tentative approach to funding costs analysis and management for contracts with bilateral counterparty risk in a simplified setting. We depart from the existing literature by analyzing the issue of funding…
We study a game between liquidity provider and liquidity taker agents interacting in an over-the-counter market, for which the typical example is foreign exchange. We show how a suitable design of parameterized families of reward functions…
In this work we develop a tractable structural model with analytical default probabilities depending on a random default barrier and possibly random volatility ideally associated with a scenario based underlying firm debt. We show how to…
In the context of multi-curve modeling we consider a two-curve setup, with one curve for discounting (OIS swap curve) and one for generating future cash flows (LIBOR for a give tenor). Within this context we present an approach for the…
A variance swap is a derivative with a path-dependent payoff which allows investors to take positions on the future variability of an asset. In the idealised setting of a continuously monitored variance swap written on an asset with…
Overwhelming majority of econometric models applied on a long term basis in the financial forex market do not work sufficiently well. The reason is that transaction costs and arbitrage opportunity are not included, as this does not simulate…
The pricing of currency options is largely dependent on the dynamic relationship between a pair of currencies. Typically, the pricing of options with payoffs dependent on multi-assets becomes tricky for reasons such as the non-Gaussian…
We argue that a negative interest rate policy (NIRP) can be an effect tool for macroeconomic stabilization. We first discuss how implementing negative rates on reserves held at a central bank does not pose any theoretical difficulty, with a…
We introduce a natural generalization of the forward-starting options, first discussed by M. Rubinstein. The main feature of the contract presented here is that the strike-determination time is not fixed ex-ante, but allowed to be random,…
We investigate LIBOR-based derivatives using a parsimonious field theory interest rate model capable of instilling imperfect correlation between different maturities. Delta and Gamma hedge parameters are derived for LIBOR Caps against…
The aim of this paper is to determine the Value at Risk (VaR) of the portfolio consisting of long positions in foreign currencies on an emerging market. Basing on empirical data we restrict ourselves to the case when the tail parts of…
We consider learning a trading agent acting on behalf of the treasury of a firm earning revenue in a foreign currency (FC) and incurring expenses in the home currency (HC). The goal of the agent is to maximize the expected HC at the end of…
In this research work, an explicit Runge-Kutta-Fehlberg (RKF) time integration with a fourth-order compact finite difference scheme in space and a high order analytical approximation of the optimal exercise boundary is employed for solving…
In the present paper, an empirical study of LIBOR (London Interbank Offered Rate) data is presented. In particular, a data set of interest rates from 1997 to 1999, for two different currencies and various maturities, is analyzed. It turns…
In the rapidly evolving landscape of eCommerce, Artificial Intelligence (AI) based pricing algorithms, particularly those utilizing Reinforcement Learning (RL), are becoming increasingly prevalent. This rise has led to an inextricable…
This paper investigates and compares currency substitution between the currencies of Central and Eastern European (CEE) countries and the euro. In addition, we develop a model with microeconomic foundations, which identifies difference…