We present an spectral numerical method for the numerical valuation of bonds with embedded options. We use a CIR model for the short term interest rate. The method is based in a Galerkin formulation of the relevant partial differential equation for the value of the bond discretized by means of...

We construct an empirical measure of market frictions in the corporate market based on the difference between the corporate bond spread and the credit default swap spread for a large number of firms in a new, large dataset that we construct. Under fairly standard assumptions, the two spreads...

This paper reports on the use of multi-agent games to model financial markets. Our research employs multi-agent games to address three questions which are of great practical importance in quantitative finance: how profit opportunities may be identified, large price movements predicted, and...

This paper proposes a new way of modeling and forecasting intraday returns. We decompose the volatility of high frequency asset returns into components that may be easily interpreted and estimated. The conditional variance is expressed as a product of daily, diurnal and stochastic intraday...

Equity market crashes or booms are extreme realizations of the underlying return distribution. This paper questions whether booms are more or less likely than crashes and whether emerging markets crash more frequently than developed equity markets. We apply Extreme Value Theory (EVT) to...

In this paper we model Value-at-Risk (VaR) for daily stock index returns using a collection of parametric models of the ARCH family based on the skewed Student distribution. We show that models that rely on a symmetric density distribution for the error term underperform with respect to skewed...