Showing 1 - 10 of 39,032
This paper reexamines the issue of unspanned stochastic volatility (USV) in bond markets and the puzzle of poor relative pricing between bonds and bond options. I make a distinction between the "weak USV" and the "strong USV" scenarios, and analyze the evidence for each of them. I argue that the...
Persistent link: https://www.econbiz.de/10014218891
Complex structured products especially collateralized debt obligations (CDOs) were at the center of the recent credit crisis. This paper explores two structural sources of CDO mispricing: modeling difficulty and data limitation. Comparing pricing outputs among models with different...
Persistent link: https://www.econbiz.de/10012999279
After Lehman default (credit crisis 2007), practitioners considered the default risk as a major risk. The regulators pushed the industry to use collateral in order to reduce the risk. In this new world, we want to see how this new considerations affect the theory related to the Partial...
Persistent link: https://www.econbiz.de/10013002026
We show that forward rates can be modeled as ABCD parametric tenor basis spreads over the underlying overnight rate curve. This is possible for both continuously and simply compounded forward rates, with a simple approximation for converting between the corresponding basis. Increasing...
Persistent link: https://www.econbiz.de/10013002868
We solve a dynamic general equilibrium model with generalized disappointment aversion preferences and continuous state endowment dynamics. We apply the framework to the term structure of interest rates and show that the model generates an upward sloping term structure of nominal interest rates,...
Persistent link: https://www.econbiz.de/10013005999
Over the past decade, many central banks reduced interest rates to near-zero levels. I show that this has important implications for the dynamics of asset prices. In both the US and Japan, one such effect was that the correlation of stock and nominal bond returns decreased sharply as the short...
Persistent link: https://www.econbiz.de/10012965673
We generalize the algorithmic differentiation method proposed by Antonov (2016) from price Greeks to XVA Greeks. This method, named Backward Differentiation (BD), was developed in the context of computing price or PV Greeks for individual callable exotic trades.We start by treating cases where...
Persistent link: https://www.econbiz.de/10012967129
In this article, we study the algorithmic calculation of present values greeks for callable exotic instruments. The speed of greeks evaluations becomes important with recent initial margin rules, including the ISDA standard model SIMM, requiring sensitivity calculations for non-cleared deals...
Persistent link: https://www.econbiz.de/10012968139
This paper develops and analyses convergence properties of a novel multi-level Monte-Carlo (mlMC) method for computing prices and hedging parameters of plain-vanilla European options under a very general $b$-dimensional jump-diffusion model, where $b$ is arbitrary. The model includes stochastic...
Persistent link: https://www.econbiz.de/10012972095
Computing Standardized Initial Margin Model Margin Valuation Adjustment (SIMM-MVA) requires the simulation of future sensitivities, but these are expensive to compute for callable products. This paper introduces a method which avoids nested calls to the pricing function, similar to the use of...
Persistent link: https://www.econbiz.de/10012947422