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Although the effect of interest rate stochasticity can safely be ignored for short-dated exchange traded volatility derivatives, this is not the case for the kind of long-dated OTC derivatives often used by insurance companies and other financial institutions. We therefore extend existing...
Persistent link: https://www.econbiz.de/10013022607
Based on a multivariate extension of the constrained locally polynomial estimator of Aït-Sahalia and Duarte (2003), we provide one of the first nonparametric estimates of probability densities of LIBOR rates under forward martingale measures and state-price densities (SPDs) implicit in interest...
Persistent link: https://www.econbiz.de/10013149933
This study evaluates the predictive content of the 3-month Euribor contracts futures. We initially show that there is a forecast error on these contracts, on average positive and increasing with the forecast horizon. Then, we propose a method for correcting futures rates thanks to macroeconomic...
Persistent link: https://www.econbiz.de/10013137943
This paper relates predictable gains from positions in fed funds futures contracts to violations of the expectations hypothesis of the term structure of interest rates. Although evidence for predictable gains from positions in short-horizon contracts is mixed, we find that gains in...
Persistent link: https://www.econbiz.de/10013025864
In this paper, we provide adjustments for liquidity and credit risk to the forward Libor rate in order to improve accuracy of the forward rate in forecasting the 3-month Libor rate. In particular, we introduce the adjusted forward curve (AFC) that models the update in the forward curve from one...
Persistent link: https://www.econbiz.de/10012849043
Persistent link: https://www.econbiz.de/10014251568
We introduce a novel semi-parametric estimator of the price of American options in a discrete time, Markovian framework. The estimator is based on a parametric specification of the stochasticdiscount factor and is non-parametric w.r.t. the historical dynamics of the state variables. The...
Persistent link: https://www.econbiz.de/10008798293
Recently, Diebold and Li (2003) obtained good forecasting results for yield curves in a reparametrized Nelson-Siegel framework. We analyze similar modeling approaches for price curves of variance swaps that serve nowadays as hedging instruments for options on realized variance.We consider the...
Persistent link: https://www.econbiz.de/10012966237
Persistent link: https://www.econbiz.de/10012875953
Asset prices depend on two elements: the dynamics of the state variables and the pricing kernel. Traditional term structure models differ in factor dynamics. However, most of them imply a log-linear pricing kernel. We investigate empirically the role of factor dynamics and pricing kernel in...
Persistent link: https://www.econbiz.de/10013128393