In this paper we compare market prices of credit default swaps with model prices. We showthat a simple reduced form model with a constant recovery rate outperforms the market practice ofdirectly comparing bonds' credit spreads to default swap premiums. We find that the model workswell for...

This paper studies empirical issues of one-factor yield curve models. We focus on the models by Ho & Lee (1986), Hull & White (1990) and Moraleda & Vorst (1996). To be consistent in the comparison of the models, we derive them all within the Ritkchen and Sankarasubramanian (1995) framework,...

We develop an econometric methodology for the study of the yield curve and its interactions with measures of non-standard monetary policy during possibly turbulent times. The yield curve is modeled by the dynamic Nelson-Siegel model while the monetary policy measurements are modeled as...

One of the fastest growing areas in empirical finance, and also one of the least rigorously analyzed, especially from a financial econometrics perspective, is the econometric analysis of financial derivatives, which are typically complicated and difficult to analyze. The purpose of this special...

When using an Euler discretisation to simulate a mean-reverting square root process, one runs into the problem that while the process itself is guaranteed to be nonnegative, the discretisation is not. Although an exact and efficient simulation algorithm exists for this process, at present this...

At the time of writing this article, Fourier inversion is the computational method of choice for a fast and accurate calculation of plain vanilla option prices in models with an analytically available characteristic function. Shifting the contour of integration along the complex plane allows for...