Option prices seem to behave in ways inconsistent with the Black-Scholes model. Implied volatility varies with the strike price in a parabolic shape that is often called the volatility 'smile.' My objective in this paper is to identify implied probability distributions that might explain this...

In this paper we face the fitting versus forecasting paradox with the objective of realizing an optimal Early Warning System to better describe and predict past and future sovereign defaults. We do this by proposing a new Regression Tree-based model that signals a potential crisis whenever...