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Interest rate convexity and the volatility smile
Boenkost, Wolfram; Schmidt, Wolfgang M. - 2006
When pricing the convexity effect in irregular interest rate derivatives such as, e.g., Libor-in-arrears or CMS, one … problem of convexity by replicating the irregular interest flow or option with liquidly traded options with different strikes …
Persistent link: https://www.econbiz.de/10011293935
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Are the exchange rates of EMU candidate countries anchored by their expected euro locking rates?
Naszódi, Anna (contributor) - 2008
This paper tests whether the exchange rates of the Czech koruna, the Hungarian forint, and the Polish zloty were anchored by market expectations concerning their euro locking rates. First, the process of the exchange rate is derived as a function of the following factors: (i) latent exchange...
Persistent link: https://www.econbiz.de/10003633014
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Empirical pricing kernels and investor preferences
Detlefsen, Kai (contributor); Härdle, Wolfgang (contributor) - 2007
This paper analyzes empirical market utility functions and pricing kernels derived from the DAX and DAX option data for three market regimes. A consistent parametric framework of stochastic volatility is used. All empirical market utility functions show a region of risk proclivity that is...
Persistent link: https://www.econbiz.de/10003633572
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Statistics of risk aversion
Giacomini, Enzo (contributor); Härdle, Wolfgang (contributor) - 2007
Persistent link: https://www.econbiz.de/10003633711
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An overreaction implementation of the coherent market hypothesis and option pricing
Schöbel, Rainer (contributor); Veith, Jochen (contributor) - 2006
Inspired by the theory of social imitation (Weidlich 1970) and its adaptation to financial markets by the Coherent Market Hypothesis (Vaga 1990), we present a behavioral model of stock prices that supports the overreaction hypothesis. Using our dynamic stock price model, we develop a two factor...
Persistent link: https://www.econbiz.de/10003636657
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Risk preference based option pricing in a fractional Brownian market
Rostek, Stefan (contributor); Schöbel, Rainer (contributor) - 2006
We focus on a preference based approach when pricing options in a market driven by fractional Brownian motion. Within this framework we derive formulae for fractional European options using the traditional idea of conditional expectation. The obtained formulae - as well as further results -...
Persistent link: https://www.econbiz.de/10003636687
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Default dependence : the equity default relationship
Turnbull, Stuart M. (contributor); Yang, Jun (contributor) - 2008
The paper examines three equity-based structural models to study the nonlinear relationship between equity and credit default swap (CDS) prices. These models differ in the specification of the default barrier. With cross-firm CDS premia and equity information, we are able to estimate and compare...
Persistent link: https://www.econbiz.de/10003641322
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Numerics of implied binomial trees
Härdle, Wolfgang (contributor);  … - 2008
Market option prices in last 20 years confirmed deviations from the Black and Scholes (BS) models assumptions, especially on the BS implied volatility. Implied binomial trees (IBT) models capture the variations of the implied volatility known as "volatility smile". They provide a discrete...
Persistent link: https://www.econbiz.de/10003727608
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Valuation of convexity related derivatives
Witzany, Jiří (contributor) - 2008
. Beside the popular convexity adjustment formula, we will develop an improved two or more variable adjustment formula … assumption of log-normality of the relevant tradable underlying assets applicable to a wide class of convexity related …. -- interest rate derivatives ; Libor in arrears ; constant maturity swap ; valuation models ; convexity adjustment …
Persistent link: https://www.econbiz.de/10003755156
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A semiparametric factor model for electricity forward
Borak, Szymon (contributor); Weron, Rafađ (contributor) - 2008
In this paper we introduce the dynamic semiparametric factor model (DSFM) for electricity forward curves. The biggest advantage of our approach is that it not only leads to smooth, seasonal forward curves extracted from exchange traded futures and forward electricity contracts, but also to a...
Persistent link: https://www.econbiz.de/10003770649