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This article proposes a calibration framework for complex option pricing models that jointly fits market option prices and the term structure of variance. Calibrated models under the conventional objective function, the sum of squared…
We introduce the concept of no-arbitrage in a credit risk market under ambiguity considering an intensity-based framework. We assume the default intensity is not exactly known but lies between an upper and lower bound. By means of the…
In this paper we provide evidence that financial option markets for equity indices give rise to non-trivial dependency structures between its constituents. Thus, if the individual constituent distributions of an equity index are inferred…
Models which postulate lognormal dynamics for interest rates which are compounded according to market conventions, such as forward LIBOR or forward swap rates, can be constructed initially in a discrete tenor framework. Interpolating…
Market expectations about AI's economic impact may influence interest rates. Previous work has shown that US bond yields decline around the release of a sample of mostly proprietary AI models (Andrews and Farboodi 2025). I extend this…
We present a novel approach to the pricing of financial instruments in emission markets, for example, the EU ETS. The proposed structural model is positioned between existing complex full equilibrium models and pure reduced form models.…
Finding similar bonds remains challenging in fixed-income analytics, as numerical financial attributes often overshadow categorical non-financial ones such as issuer sector and domicile. This paper shows that these categorical attributes…
Accurate forecasting of zero coupon bond yields for a continuum of maturities is paramount to bond portfolio management and derivative security pricing. Yet a universal model for yield curve forecasting has been elusive, and prior attempts…
The Interbank Offered Rate is a vital benchmark interest rate in the financial markets of every country to which financial contracts are tied. In the light of the recent LIBOR manipulation incident, this paper seeks to address the fear that…
We study the role of co-jumps in the interest rate futures markets. To disentangle continuous part of quadratic covariation from co-jumps, we localize the co-jumps precisely through wavelet coefficients and identify statistically…
This study develops an integrated stochastic modeling framework for pricing short and medium-maturity equity options and assessing interest-rate risk using the Heston (1993), Bates (1996), and CIR (1985) models. We calibrate the Heston…
With $P_t$ the price in current dollars of a dollar delivered $t$ time units from now, we assume that $P$ is a decreasing function defined for $t \in \mathbb{R}_+$ with $P_0 = 1$. The negative logarithmic derivative, $-…
We propose a projection method to estimate risk-neutral moments from option prices. We derive a finite-sample bound implying that the projection estimator attains (up to a constant) the smallest pricing error within the span of traded…
We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…
Gulisashvili et al. [Quant. Finance, 2018, 18(10), 1753-1765] provide a small-time asymptotics for the mass at zero under the uncorrelated stochastic-alpha-beta-rho (SABR) model by approximating the integrated variance with a moment-matched…
In this paper, we present a method for constructing a (static) portfolio of co-maturing European options whose price sign is determined by the skewness level of the associated implied volatility. This property holds regardless of the…
We study U.S. Treasury yield curve forecasting under distributional uncertainty and recast forecasting as an operations research and managerial decision problem. Rather than minimizing average forecast error, the forecaster selects a…
Extracting the risk neutral density (RND) function from option prices is well defined in principle, but is very sensitive to errors in practice. For risk management, knowledge of the entire RND provides more information for Value-at-Risk…
Random-expiry options are nontraditional derivative contracts that may expire early based on a random event. We develop a methodology for pricing these options using a trinomial tree, where the middle path is interpreted as early expiry. We…
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…