We consider forward rate rate models of HJM type, as well as more general infinite dimensional SDEs, where the volatility/diffusion term is stochastic in the sense of being driven by a separate hidden Markov process. Within this framework we use the previously developed Hilbert space realization...

In this paper, another factor that affects equity risk premium is derived from a simple classical monetary model, which basically adds back labor-leisure to a simple consumption-only consumption-based asset pricing model. If every present/future good is traded at time t=0, just as in traditional...

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...

We develop a novel framework for computing the total valuation adjustment (XVA) of a European claim accounting for funding costs, counterparty credit risk, and collateralization. Based on no-arbitrage arguments, we derive the nonlinear backward stochastic differential equations (BSDEs)...

In this note we propose a simple two-factor multi-curve model where Fed-fund, SOFR and LIBOR rates are modeled jointly. The model is used to price the newly quoted SOFR futures as well as Eurodollar futures. We then derive pricing formulas for SOFR-based swaps, and show how the valuations of...

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...

The European Union Emission Trading Scheme is the largest market mechanism yet implemented to spur emissions reduction. In the scheme emissions certificates are traded within annual periods to compensate for the total emissions of given companies. The rules for how certificates can be passed...

Since the credit crisis the valuation of simple derivatives has become much more complex, primarily through so-called adjustments such as the credit value, debt value and funding value adjustment. Most of these elements of the valuation are well understood, although not always easily calculated....