Related papers: Priced risk in corporate bonds
This paper explores the implications of using machine learning models in the pricing of catastrophe (CAT) bonds. By integrating advanced machine learning techniques, our approach uncovers nonlinear relationships and complex interactions…
The market practice of extrapolating different term structures from different instruments lacks a rigorous justification in terms of cash flows structure and market observables. In this paper, we integrate our previous consistent theory for…
In this article, we investigate whether exchange rate risk is priced. We use a multivariate GARCH-in-Mean specification and test alternative conditional international CAPM versions. Our results support strongly the international…
Risk-averse investors often wish to exclude stocks from their portfolios that bear high credit risk, which is a measure of a firm's likelihood of bankruptcy. This risk is commonly estimated by constructing signals from quarterly accounting…
We give a complete algorithm and source code for constructing general multifactor risk models (for equities) via any combination of style factors, principal components (betas) and/or industry factors. For short horizons we employ the…
Modeling and characterizing multiple factors is perhaps the most important step in achieving excess returns over market benchmarks. Both academia and industry are striving to find new factors that have good explanatory power for future…
The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on…
Catastrophe (CAT) bond markets are incomplete and hence carry uncertainty in instrument pricing. As such various pricing approaches have been proposed, but none treat the uncertainty in catastrophe occurrences and interest rates in a…
This article presents a generic model for pricing financial derivatives subject to counterparty credit risk. Both unilateral and bilateral types of credit risks are considered. Our study shows that credit risk should be modeled as American…
This research is to assess cryptocurrencies with the conditional beta, compared with prior studies based on unconditional beta or fixed beta. It is a new approach to building a pricing model for cryptocurrencies. Therefore, we expect that…
Estimating the covariance of asset returns, i.e., the risk model, is a key component of financial portfolio construction and evaluation. Most risk modeling approaches produce a factor model that decomposes the asset variability into two…
In this paper we present a rigorously motivated pricing equation for derivatives, including general cash collateralization schemes, which is consistent with quoted market bond prices. Traditionally, there have been differences in how…
In this paper is investigated the pricing problem of options on bonds with credit risk based on analysis on two kinds of solving problems for the Black-Scholes equations. First, a solution representation of the Black-Scholes equation with…
The purpose of this paper is to study the generalized Fong--Vasicek two-factor interest rate model with stochastic volatility. In this model the dispersion of the stochastic short rate (square of volatility) is assumed to be stochastic as…
Single index financial market models cannot account for the empirically observed complex interactions between shares in a market. We describe a multi-share financial market model and compare characteristics of the volatility, that is the…
Researchers are more likely to share notable findings. As a result, published findings tend to overstate the magnitude of real-world phenomena. This bias is a natural concern for asset pricing research, which has found hundreds of return…
In this paper we analyse the five-factor capital market model of Munk et al.(2004). The model features a Vasicek interest rate model, an equity index with mean-reverting excess return and an index for realized inflation with mean-reverting…
An efficient method to price bonds with optional sinking feature is presented. Such instruments equip their issuer with the option (but not the obligation) to redeem parts of the notional prior to maturity, therefore the future cash flows…
This article's aim is to provide the solution to the equity premium puzzle without using calibrated values. Calibrated values of subjective time discount factor were used in my prior derived models because 4 variables were determined from 3…
We analyze analytic approximation formulae for pricing zero-coupon bonds in the case when the short-term interest rate is driven by a one-factor mean-reverting process with a volatility nonlinearly depending on the interest rate itself. We…