Showing 1 - 10 of 2,173
In current financial markets negative interest rates have become rather persistent, while in theory it is often common practice to discard such rates as incredible and irrelevant. However, from a risk management perspective, it is crucially important to financial institutions to properly account...
Persistent link: https://www.econbiz.de/10012852344
We present an algorithm to approximate moments for forward rates under a displaced lognormal forward-LIBOR model (DLFM). Since the joint distribution of rates is unknown, we use a multi-dimensional full weak order 2.0 Ito-Taylor expansion in combination with a second-order Delta method. This...
Persistent link: https://www.econbiz.de/10012835181
In this paper, we derive explicit expressions for certain joint moments of stock prices and option prices within a generic affine stochastic volatility model. Evaluation of each moment requires weighted inverse Fourier transformation of a function that is determined by the risk-neutral and...
Persistent link: https://www.econbiz.de/10012893546
Affine jump diffusion models in general and affine stochastic volatility models in particular are important modeling tools in finance. Their popularity resides in their exibility coupled with their analytical tractability, especially with respect to characteristic functions and polynomial...
Persistent link: https://www.econbiz.de/10012893762
We provide an efficient swaption volatility approximation for longer maturities and tenors, under the lognormal forward-LIBOR model. In particular, we approximate the swaption volatility with a mean update of the spanning forward rates. Since the joint distribution of the forward rates is not...
Persistent link: https://www.econbiz.de/10012901887
In this paper we propose a novel flexible framework based on time changed Lévy process for the joint evolution of stock log-returns and their volatility with the aim of analysing which risk factors and which distribution features provide a robust calibration, repricing and hedging performance....
Persistent link: https://www.econbiz.de/10012933831
We present a new approach to identifying asset price bubbles based on options data. Given their forward-looking nature, options are ideal instruments with which to investigate market expectations about the future evolution of asset prices, which are key to understanding price bubbles. By...
Persistent link: https://www.econbiz.de/10012826066
Classical quantitative finance models such as the Geometric Brownian Motion or its later extensions such as local or stochastic volatility models do not make sense when seen from a physics-based perspective, as they are all equivalent to a negative mass oscillator with a noise. This paper...
Persistent link: https://www.econbiz.de/10012826182
This study provides a liquidity-supply side model of options markets for illustrating how options pricing uncertainty affects moment risk premia. The model is based on micro-structure theory such that a representative market maker dynamically replicates options prices, hedges risky positions,...
Persistent link: https://www.econbiz.de/10012826610
The pricing of vanilla options on underliers with cash dividends is a surprisingly contentious and active research subject, for both European or American exercise style. Neither on the listed options side (calls and puts) nor on the flow/structured side of longer-term vanillas or light exotics...
Persistent link: https://www.econbiz.de/10013018989