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When It Cannot Get Better or Worse: The Asymmetric Impact of Good and Bad News on Bond Returns in Expansions and Recessions

Beber, Alessandro; Brandt, Michael W. - Institut für Schweizerisches Bankwesen <Zürich> - 2007

We examine empirically the response of bond returns and their volatility to good and bad macroeconomic news in economic … bad news for bond returns in expansions and, to a lesser extent, when it contains good news for bond returns in … contractions. In particular, we observe the strongest bond market response to bad news in the release of non-farm payrolls in …

Persistent link: https://www.econbiz.de/10005858024

International Stock-Bond Correlations in a Simple Affine Asset Pricing Model

D'Addona, Stefano; Kind, Axel H. - Institut für Schweizerisches Bankwesen <Zürich> - 2006

correlations and to explain how economic fundamentals influence the correlation between stock and bond returns. The presented model … to generate stock-bond correlations that are in line with empirically observed figures. …

Persistent link: https://www.econbiz.de/10005858383

Flight-to-Quality or Flight-to-Liquidity? Evidence from the Euro-Area Bond Market

Beber, Alessandro; Brandt, Michael W.; Kavajec, Kenneth A. - Institut für Schweizerisches Bankwesen <Zürich> - 2006

Do bond investors demand credit quality or liquidity? The answer is both, but at different times and for different … reasons. Using data on the Euro-area government bond market, which features a unique negative correlation between credit … market uncertainty. In contrast, the destination of large flows into the bond market is determined almost exclusively by …

Persistent link: https://www.econbiz.de/10005858392

Pricing Prepayment Option in C&I Loans at Origination

Cossin, Didier; Lu, Hongze - Institut für Schweizerisches Bankwesen <Zürich>; … - 2002

This paper presents a pricing model of commercial and industrial (C&I) loan prepayment option. Modeling of prepayment is essential in pricing mortgage contracts since prepayment truncates the timing and amount of expected cash flows. Lenders normally charge a penalty for prepayment, for example...

Persistent link: https://www.econbiz.de/10005858717

Pricing American Options Under Stochastic Volatility and Stochastic Interest Rates

Medvedev, Alexey; Scaillet, Olivier - Institut für Schweizerisches Bankwesen <Zürich> - 2008

We introduce a new analytical approach to price American options. Using an explicit and intuitive proxy for the exercise rule, we derive tractable pricing formulas using a short-maturity asymptotic expansion. Depending on model parameters, this method can accurately price options with...

Persistent link: https://www.econbiz.de/10005857779

Arbitrage-free market models for option prices

Wissel, Johannes - Institut für Schweizerisches Bankwesen <Zürich> - 2007

In this paper we construct arbitrage-free market models of stochastic volatility type for one stock, one bank account and a ﬁnite family of European call options with various strikes and maturities. We ﬁrst introduce local implied volatilities and price level as market observables which...

Persistent link: https://www.econbiz.de/10005857780

Model Risk for European Stock Index Options

Gençay, Ramo; Gibson, Rajna - Institut für Schweizerisches Bankwesen <Zürich>; … - 2004

In empirical modeling, there have been two strands for pricing in the options literature, namely the parametric and nonparametric models. Often, the support for the nonparametric methods is based on a benchmark such as theBlack-Scholes model with constant volatility. In this paper, we examine...

Persistent link: https://www.econbiz.de/10005857988

Difference in Beliefs and Currency Options Markets

Beber, Alessandro; Breedon, Francis; Buraschi, Andrea - Institut für Schweizerisches Bankwesen <Zürich> - 2007

This paper investigates the impact of heterogeneous beliefs of professional investors on the currency options market. Using a unique data set with detailed information on the foreign-exchange forecasts of about 50 market participants over more than ten years, we construct an empirical proxy for...

Persistent link: https://www.econbiz.de/10005858023

Barrier Option Pricing Using Adjusted Transition Probabilities

Barone-Adesi, G.; Fusari, N.; Theal, J. - Institut für Schweizerisches Bankwesen <Zürich> - 2007

In the existing literature on barrier options, much effort has been exerted to ensureconvergence through placing the barrier in close proximity to, or directly onto, thenodes of the tree lattice. In this paper we show that this may not be necessary toachieve accurate option price...

Persistent link: https://www.econbiz.de/10005858216

Option Pricing with Aggregation of Physical Models and Nonparametric Statistical Learning

Fan, Jianqing; Mancini, Loriano - Institut für Schweizerisches Bankwesen <Zürich> - 2007

Financial models are largely used in option pricing. These physical models capture several salient features of asset price dynamics. The pricing performance can be significantly enhanced when they are combined with nonparametric learning approaches, that empirically learn and correct pricing...

Persistent link: https://www.econbiz.de/10005858326