This paper provides new evidence on the effects of bank capital requirements in Indonesia. In investigating the impact of bank capital requirements, we set up a simple model of the banking firm which can detect the impact of capital regulation on banks’ behaviour as well as having possible...

Several studies have recommended reliance on subordinated debt as a tool for monitoring banks by investors and for enhancing depositors’ protection. However, subordinated debenture increases the level of leverage and thus the probability of costly failure. We propose a novel financial...

In this paper we develop an improvement on one of the more popular methods for Value-at-Risk measurement, the historical simulation approach. The procedure we employ is the following: First, the density of the return on a portfolio is estimated using a non-parametric method, called a Gaussian...

In the context of arbitrage-free modelling of financial derivatives, we introduce a novel calibration technique for models in the affine- quadratic class for the purpose of contingent claims pricing and risk- management. In particular, we aim at calibrating a stochastic volatility jump diffusion...

Leveraging the explicit formula for European swaptions and coupon-bond options in HJM one-factor model, we develop a semi-explicit formula for 2-Bermudan options (also called Canary options). We first extend the European swaption formula to future times. We are able to reduce the valuation of a...

This paper tests empirically the performance of three structural models of corporate bond pricing, namely Merton (1974), Leland (1994) and Fan and Sundaresan (2000). While the first two models overestimate bond prices, the Fan and Sundaresan model reveals an extremely good performance. When...

We present an explicit formula for European options on coupon bearing bonds and swaptions in the Heath-Jarrow-Morton (HJM) one factor model with non-stochastic volatility. The formula extends the Jamshidian formula for zero-coupon bonds. We provide also an explicit way to compute the hedging...

A lattice-based method is advanced for evaluating functionals of sequences of path-wise values of a lattice's state variable. For the Asian call valuations in this paper, the lattices discretely replicate the stochastic future states of conventionally prescribed, lognormally distributed, equity...

Australian dollar bills futures are very particular, not only on the valuation at expiry but also for the maturity delivery option and the credit delivery option. This note consider only the interest rate part of the futures (marginning and maturity delivery option). An explicit formula for the...

For option whose striking price equals the forward price of the underlying asset, the Black-Scholes pricing formula can be approximated in closed-form. A interesting result is that the derived equation is not only very simple in structure but also that it can be immediately inverted to obtain an...