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A callable leveraged constant maturity swap (CMS) spread note allows the holder to benefit from future changes in the spread between two swap interest rates. The issues retains the right to call the note at pre-specified times in the future. The note is priced via Monte Carlo simulation using...
Persistent link: https://www.econbiz.de/10013098211
Skewness is specifically considered to develop semi-parametric upper bounds for option prices and expected payoffs for call options. Bounds on variance default swaps, a new asset, and for the variance risk premium are derived.The Technical Proof for this paper is available at the following URL:...
Persistent link: https://www.econbiz.de/10013089436
We explore whether the market variance risk premium (VRP) can be predicted. First, we propose a novel approach to measure VRP which distinguishes the investment horizon from the variance swap's maturity. We extract VRP from actual rather than synthetic S&P 500 variance swap quotes, thus avoiding...
Persistent link: https://www.econbiz.de/10010412464
We explore whether the market variance risk premium (VRP) can be predicted. First, we propose a novel approach to measure VRP which distinguishes the investment horizon from the variance swap's maturity. We extract VRP from actual rather than synthetic S&P 500 variance swap quotes, thus avoiding...
Persistent link: https://www.econbiz.de/10010472838
This paper provides empirical evidence that volatility markets are integrated through the time-varying term structure of variance risk premia. These risk premia predict the returns from selling volatility for different horizons, maturities, and products, including variance swaps, straddles, and...
Persistent link: https://www.econbiz.de/10011904683
This work discusses the calibration of instantaneous Libor correlations in the Libor market model. We extend existing calibration strategies by incorporation of spread option implied correlation information. The correlation structure implied by CMS spread options observed in the present-day's...
Persistent link: https://www.econbiz.de/10013134183
This paper studies variance risk premiums in the credit market. Using a novel data set of swaptions quotes on the CDX North America Investment Grade index, we find that returns of credit variance swaps are negative and economically large. Shorting credit variance swaps yields an annualized...
Persistent link: https://www.econbiz.de/10012867884
In electricity markets, futures contracts typically function as a swap since they deliver the underlying over a period of time. In this paper, we introduce a market price for the delivery periods of electricity swaps, thereby opening an arbitrage-free pricing framework for derivatives based on...
Persistent link: https://www.econbiz.de/10012216375
This is study empirically examine the impact of market conditions on credit spreads asmotivated by recently developed structural credit risk models. Using credit default swap(CDS) spreads, we find that, in the time series, average credit spreads are decreasing inGDP growth rate, but increasing...
Persistent link: https://www.econbiz.de/10005866359
This paper invesitigates the influence of various fundamental variables on a cross-section of credit default swap transaction data.
Persistent link: https://www.econbiz.de/10005843402