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We introduce the smooth total variation distance as a natural choice to establish equivalence. We propose asymptotic and bootstrap-based tests for which asymptotic optimality is shown. The finite sample performance is studied by simulations. Then we apply tests to real data sets. The tests are...
Persistent link: https://www.econbiz.de/10012911947
We study the stability of the no-arbitrage property under model uncertainty. We measure model uncertainty with the total variation distance of underlying probability distributions. We show that sufficiently small changes of the underlying probability distribution preserve the no-arbitrage...
Persistent link: https://www.econbiz.de/10012973797
Abstract. This paper describes how an efficient and exact Monte-Carlo simulation of the Hull-White model could be performed. For that purpose the joint conditional distribution of the short interest rate and the discount factor is derived. The proposed approach can be straightforward extended to...
Persistent link: https://www.econbiz.de/10013007339