Related papers: Statistical modeling of SOFR term structure
We analyze the stability properties of equilibrium solutions and periodicity of orbits in a two-dimensional dynamical system whose orbits mimic the evolution of the price of an asset and the excess demand for that asset. The construction of…
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…
In this letter, I consider the issue of pricing risky debt by following Merton's approach. I generalize Merton's results to the case where the interest rate is modeled by the CIR term structure. Exact closed forms are provided for the risky…
A very brief history of relative valuation in neoclassical finance since 1973 is presented, with attention to core currency issues for emerging economies. Price formation is considered in the context of hierarchical causality, with…
Credit risk stress testing has become an important risk management device which is used both by banks internally and by regulators. Stress testing is complex because it essentially means projecting a bank's full balance sheet conditional on…
Based on empirical market data, a stochastic volatility model is proposed with volatility driven by fractional noise. The model is used to obtain a risk-neutrality option pricing formula and an option pricing equation.
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…
We model a nonlinear price curve quoted in a market as the utility indifference curve of a representative liquidity supplier. As the utility function we adopt a g-expectation. In contrast to the standard framework of financial engineering,…
The purpose of this article is to propose a new "theory," the Strategic Analysis of Financial Markets (SAFM) theory, that explains the operation of financial markets using the analytical perspective of an enlightened gambler. The gambler…
We present a class of flexible and tractable static factor models for the term structure of joint default probabilities, the factor copula models. These high-dimensional models remain parsimonious with pair-copula constructions, and nest…
In modern applications, statisticians are faced with integrating heterogeneous data modalities relevant for an inference, prediction, or decision problem. In such circumstances, it is convenient to use a graphical model to represent the…
We propose some machine-learning-based algorithms to solve hedging problems in incomplete markets. Sources of incompleteness cover illiquidity, untradable risk factors, discrete hedging dates and transaction costs. The proposed algorithms…
Models continue to increase their already broad use across industry as well as their sophistication. Worldwide regulation oblige financial institutions to manage and address model risk with the same severity as any other type of risk, which…
Rate change calculations in the literature involve deterministic methods that measure the change in premium for a given policy. The definition of rate change as a statistical parameter is proposed to address the stochastic nature of the…
In this work we show that prediction uncertainty estimates gleaned from deep learning models can be useful inputs for influencing the relative allocation of risk capital across trades. In this way, consideration of uncertainty is important…
This paper studies pricing derivatives in an age-dependent semi-Markov modulated market. We consider a financial market where the asset price dynamics follow a regime switching geometric Brownian motion model in which the coefficients…
While asset-pricing models increasingly recognize that factor risk premia are subject to structural change, existing literature typically assumes that investors correctly account for such instability. This paper studies how investors…
Local Stochastic Volatility (LSV) models have been used for pricing and hedging derivatives positions for over twenty years. An enormous body of literature covers analytical and numerical techniques for calibrating the model to market data.…
We introduce a simple and tractable methodology for estimating semiparametric conditional latent factor models. Our approach disentangles the roles of characteristics in capturing factor betas of asset returns from ``alpha.'' We construct…
Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures…