This paper proposes a simple structural model to estimate the term structure of sovereign spreads and the implied default probability of a selected group of emerging countries, which accounts for more than 50% of the J. P. Morgan EMBIG index. The real exchange rate dynamics, modeled as a pure...

The objective of our work is to study the term structure of interest rates and the sovereign credit spreads of emerging markets. We develop a model from term structure, credit risk and vector autoregressive models, based on the articles by Ang and Piazzesi (2003) and Ang, Dong and Piazzesi...

We develop a novel contract design, the fed funds futures (FFF) variance futures, which reflects the expected realized basis point variance of an underlying FFF rate. The valuation of short-term FFF variance futures is completely model-independent in a general setting that includes the cases...

Empirical evidence suggests that fixed income markets exhibit unspanned stochastic volatility (USV), that is, that one cannot fully hedge volatility risk solely using a portfolio of bonds. While Collin-Dufresne and Goldstein (2002) showed that no two-factor Cox-Ingersoll-Ross (CIR) model can...

We study American swaptions in the linear-rational (LR) term structure model introduced. The American swaption pricing problem boils down to an optimal stopping problem that is analytically tractable. It reduces to a free-boundary problem that we tackle by the local time-space calculus. We...

Over the last decade, dividends have become a standalone asset class instead of a mere side product of an equity investment. We introduce a framework based on polynomial jump-diffusions to jointly price the term structures of dividends and interest rates. Prices for dividend futures, bonds, and...

We study the term structure of variance swaps, equity and variance risk premia. A model-free analysis reveals a significant price jump component in variance swap rates. A model-based analysis shows that investors' willingness to ensure against volatility risk increases after a market drop. This...

We introduce the class of linear-rational term structure models in which the state price density is modeled such that bond prices become linear-rational functions of the factors. This class is highly tractable with several distinct advantages: i) ensures nonnegative interest rates, ii) easily...

This paper studies the term structure implications of a simple structural economy in which the representative agent displays ambiguity aversion, modeled by Multiple Priors Recursive Utility. Bond excess returns reflect a premium for ambiguity, which is observationally distinct from the risk...

We propose a novel time-changed L évy LIBOR market model for the joint pricing of caps and swaptions. The time changes are split into three components. The first component allows us to match the volatility term structure, the second generates stochastic volatility, and the third one...