This paper reveals that the class of affine term structure models introduced by Duffie and Kan (1996) is much larger than it has been usually considered in the literature. We study "fundamental" risk factors, which represent multivariate risk aversion of the consumer volatility matrix of the...

Previous research has shown that frictions might have a significant impact on the value of a contingent claim, as discussed, for example, in Karatzas & Kou (1996)and Collin-Dufresne & Hugonnier (2002). We consider two types of frictions particularly important: frictions related to trading, such...

In June 2003 Swiss banks held over CHF 500 billion in mortgages. This important segment accounts for about 63% of all loan portfolios of Swiss banks. Since default insurance is not common in Switzerland, the corresponding risks are a severe threat for the health of the financial system. We...

This pap er intro duces a general framework for market mo dels, namedM arket M o del Approach, through the concept of admissible sets of for-ward swap rates spanning a given tenor structure. We relate this conceptto results in graph theory by showing that a set is admissible if and only ifthe...

This paper introduces a time-inhomogeneous parameterization of the forward LIBOR volatilities and analyzes its implications for the valuation of Bermudan swaptions. The model approximates the actual term structure of volatilities with a curve from a given set defined by the parametric...

We analyze the problem of real optimal asset allo cation for a p ensionfund maximising the exp ected CRRA utility of its real disp osable wealth.The financial horizon of the analysis coincides with the random deathtime of a representative subscriber. We consider a very general settingwhere...

Due to their underlying assumptions, the standard concepts of risk aversion and preference for the present are generally defined separately and represented by scalar measures, and this implies many shortcomings. More specifically, if measured by a scalar, the risk aversion remains unchanged,...

We investigate the theoretical and empirical difference between thestandard convexity adjustment and Forward Libor Model in a particular case oftwo-period Constant Maturity Swaps. Using daily data from 1991 to 1997, wesimulate the difference (spread) between the two-period CMS swap rates...

Credit Default Swaps (CDS) are in the process of becoming, liquid and extremelyinformative instruments of default risk. Yet, default swap market has severalnovel aspects that have not received much attention. In this paper we studyan aspect of CDS´s that relates to the prediction of financial...