Related papers: Option-Implied Zero-Coupon Yields: Unifying Bond a…
This paper develops a three-currency Heath-Jarrow-Morton framework in which corporate credit is treated as a separate economy, connected to the nominal and real economies through synthetic inflation and credit exchange rates. The framework…
We consider the theory of bond discounts, defined as the difference between the terminal payoff of the contract and its current price. Working in the setting of finite-dimensional realizations in the HJM framework, under suitable notions of…
In most illiquid markets, there is no obvious proxy for the market price of an asset. The European corporate bond market is an archetypal example of such an illiquid market where mid-prices can only be estimated with a statistical model. In…
Using a recently introduced method to quantify the time varying lead-lag dependencies between pairs of economic time series (the thermal optimal path method), we test two fundamental tenets of the theory of fixed income: (i) the stock…
If prices of assets traded in a financial market are determined by non-linear pricing rules, different versions of the Call-Put Parity have been considered. We show that, under monotonicity, parities between call and put options and…
Value at risk (VaR) is a risk measure that has been widely implemented by financial institutions. This paper measures the correlation among asset price changes implied from VaR calculation. Empirical results using US and UK equity indexes…
We present a framework on how to hedge the interest rate sensitivity of liabilities discounted by an extrapolated yield curve. The framework is based on functional analysis in that we consider the extrapolated yield curve as a functional of…
In this work we consider three problems of the standard market approach to pricing of credit index options: the definition of the index spread is not valid in general, the usually considered payoff leads to a pricing which is not always…
We design a novel calibration procedure that is designed to handle the specific characteristics of options on cryptocurrency markets, namely large bid-ask spreads and the possibility of missing or incoherent prices in the considered data…
Many countries have adopted negative interest rate policies with tiering remuneration, which allows for exemption from negative rates. This practice has led to higher interbank trading volumes, with market rates ranging between zero and the…
We propose a class of discrete-time stochastic models for the pricing of inflation-linked assets. The paper begins with an axiomatic scheme for asset pricing and interest rate theory in a discrete-time setting. The first axiom introduces a…
Implied volatility is at the very core of modern finance, notwithstanding standard option pricing models continue to derive option prices starting from the joint dynamics of the underlying asset price and the spot volatility. These models…
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…
We consider the problem of hedging a European interest rate contingent claim with a portfolio of zero-coupon bonds and show that an HJM type Markovian model driven by an infinite number of sources of randomness does not have some of the…
US Yield curve has recently collapsed to its most flattened level since subprime crisis and is close to the inversion. This fact has gathered attention of investors around the world and revived the discussion of proper modeling and…
Decision markets are mechanisms for selecting one among a set of actions based on forecasts about their consequences. Decision markets that are based on scoring rules have been proven to offer incentive compatibility analogous to properly…
This paper proposes a public daily-frequency benchmark for post-GFC government-bond CIP deviations. Although CIP deviations are observed daily, the literature lacks a canonical benchmark for daily regressions comparable to standard factor…
This paper revisits the fractional cointegrating relationship between ex-ante implied volatility and ex-post realized volatility. We argue that the concept of corridor implied volatility (CIV) should be used instead of the popular…
We consider a general local-stochastic volatility model and an investor with exponential utility. For a European-style contingent claim, whose payoff may depend on either a traded or non-traded asset, we derive an explicit approximation for…
A homogeneously saturated equation for the time development of the price of a financial asset is presented and investigated for the pricing of European call options using noise that is distributed as a Student's t-distribution. In the limit…