Related papers: Statistical modeling of SOFR term structure
In this paper, we study term structure movements in the spirit of Heath, Jarrow, and Morton [Econometrica 60(1), 77-105] under volatility uncertainty. We model the instantaneous forward rate as a diffusion process driven by a G-Brownian…
When a machine learning model is deployed, its predictions can alter its environment, as better informed agents strategize to suit their own interests. With such alterations in mind, existing approaches to uncertainty quantification break.…
The paper tests the validity of the critique of the fiscal theory of the price level. A stochastic general equilibrium model with continuous time is constructed. An active fiscal policy and a passive monetary policy have been set. Monetary…
This paper studies the topic of cost-efficiency in incomplete markets. A payoff is called cost-efficient if it achieves a given probability distribution at some given investment horizon with a minimum initial budget. Extensive literature…
The LIBOR has served since the 1970s as a fundamental measure for floating term rates across multiple currencies and maturities. However, in 2017 the Financial Conduct Authority announced the discontinuation of LIBOR from the end of 2021…
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration…
I study the limit of a large random economy, where a set of consumers invests in financial instruments engineered by banks, in order to optimize their future consumption. This exercise shows that, even in the ideal case of perfect…
Alternative risk-free rates (RFRs) play a central role in the reform of interest rate benchmarks. We study a model for RFRs driven by a general affine process. Under minimal assumptions, we derive explicit valuation formulas for…
In this paper we provide a comprehensive analysis of a structural model for the dynamics of prices of assets traded in a market originally proposed in [1]. The model takes the form of an interacting generalization of the geometric Brownian…
We present a detailed analysis of interest rate derivatives valuation under credit risk and collateral modeling. We show how the credit and collateral extended valuation framework in Pallavicini et al (2011), and the related collateralized…
The phenomenology of the forward rate curve (FRC) can be accurately understood by the fluctuations of a stiff elastic string (Le Coz and Bouchaud, 2024). By relating the exogenous shocks driving such fluctuations to the surprises in the…
Modern evolvements of the technologies have been leading to a profound influence on the financial market. The introduction of constituents like Exchange-Traded Funds, and the wide-use of advanced technologies such as algorithmic trading,…
A heat kernel approach is proposed for the development of a general, flexible, and mathematically tractable asset pricing framework in finite time. The pricing kernel, giving rise to the price system in an incomplete market, is modelled by…
Closure modeling - the statistical modeling of missing dynamics in the natural sciences and engineering - is a growing and active area of research. Existing methods for closure modeling are often computationally prohibitive, lack…
Calibrating blackbox machine learning models to achieve risk control is crucial to ensure reliable decision-making. A rich line of literature has been studying how to calibrate a model so that its predictions satisfy explicit finite-sample…
We introduce a fairly general, recombining trinomial tree model in the natural world. Market-completeness is ensured by considering a market consisting of two risky assets, a riskless asset, and a European option. The two risky assets…
We develop a theory of securities price formation and dynamics based on quantum approach and without presuming any similarities with quantum mechanics. Disorder introduced by trading environment leads to probability distribution of returns…
Risk-neutral pricing dictates that the discounted derivative price is a martingale in a measure equivalent to the economic measure. The residual ambiguity for incomplete markets is here resolved by minimising the entropy of the price…
This paper is concerned with finite dimensional models for the entire term structure for energy futures. As soon as a finite dimensional set of possible yield curves is chosen, one likes to estimate the dynamic behaviour of the yield curve…
We investigate the problem of pricing derivatives under a fractional stochastic volatility model. We obtain an approximate expression of the derivative price where the stochastic volatility can be composed of deterministic functions of time…