This paper investigates the relation between risk-free rates and ex-ante market volatility. It derives a theoretical model implying a negative linear relation between risk-free rates and variance futures prices. The latter are employed as a direct market-based ex-ante estimate of risk-neutral...

This technical note provides a detailed description of a simple but effective modeling solution to mark and risk manage plain-vanilla options on dividend futures. We focus on equity indices, as dividend products for single stocks are less liquid and observable and we derive a simple pricing...

In this paper we investigate risk premiums in commodity convenience yields. The analysis consists of two steps. First, we use a three-factor model to extract monthly convenience yields from a broad sample of commodity futures. Second, we estimate multi-factor asset pricing models with...

Revisiting the two-factor valuation of financial futures contracts and their derivatives, we propose a new approach in which the covariance process between the underlying asset price and the money market interest rate is set endogenously according to investors' arbitrage operations. The...

In this paper we present two (semi)-analytic synthetic CDO tranche pricing formulas using a subordinator Levy Marshall-Olkin credit correlation model. These formulas can be easily evaluated in terms of machine computational time, therefore they are particularly suitable for the correlation model...

This paper aims to test three parametric models in pricing and hedging higher-order moment swaps. Using vanilla option prices from the volatility surface of the Euro Stoxx 50 Index, the paper shows that the pricing accuracy of these models is very satisfactory under four different pricing error...

In this article we define a multi-factor equity-interest rate hybrid model with non-zero correlation between the stock and interest rate. The equity part is modeled by the Heston model [Heston-1993] and we use a Gaussian multi-factor short rate process [Brigo,Mercurio-2007; Hull-2006]. By...

Spreads of agency mortgage-backed securities (MBS) vary significantly in the cross section and over time, but the sources of this variation are not well understood. We document that, in the cross section, MBS spreads adjusted for the prepayment option show a pronounced smile with respect to the...