Following the method of Pesaran, Shin and Smith (1999), this study extends the results of Sun, Lin and Nieh (2007) to investigate the risk diversification issue of individual corporate bonds in portfolios. This is one of the few studies on the decomposition of individual corporate yield spreads....

A dynamic hedging strategy based on a bivariate GARCH-jump model augmented with autoregressive jump intensity is proposed to manage currency risk. The GARCH-jump model, capable of capturing volatility clustering and leptokurtosis, provides a comprehensive description of the joint dynamics of the...

We study the semilinear partial differential equation (PDE) associated with the non-linear BSDE characterizing buyer's and seller's XVA in a framework that allows for asymmetries in funding, repo and collateral rates, as well as for early contract termination due to counterparty credit risk. We...

The recent price coupling of many European electricity markets has triggered a fundamental change in the interaction of day-ahead prices, challenging additionally the modeling of the joint behavior of prices in interconnected markets. In this paper we propose a regime-switching AR-GARCH copula...

The new structural model of credit risk based on a normal firm value diffusion process can infer the firm value volatility from bank credit spreads that closely agreeing with the empirically estimated firm value volatility. We use the spread-implied firm value volatility as the model volatility...

The risky assets prices of the bi-variate model are reviewed under the hegemonize concentration filtered physical probability space. In the stochastic variance of the Cox-Ingersoll-Ross process. The Mean-variance hedging expanse on the Föllmer-Schweizer decomposition is stringent to the...

The performance of dynamic trading and investment strategies can be difficult to predict. Although not without its problems, analysis of the historical performance of a strategy can provide valuable insight into its general risk and return properties. Furthermore, historical analysis allows one...

We derive the formulas for pricing corporate liabilities using a normal and a lognormal firm value diffusion process (FVDP). So far well-known structural firm models have only allowed positive firm values, but real firm value can be negative because a firm can incur losses beyond its ability to...

This paper extends the project initiated in and studies a lifecycle portfolio choice problem with borrowing constraints and finite retirement time in which an agent receives labor income that adjusts to financial market shocks in a path dependent way. The novelty here, with respect to, is the...

Forward transactions are becoming increasingly important in most of electricity markets. In this view, this paper develops a methodology able to capture the complexities of power markets and incorporate them into the framework of risk-neutral probabilities. This is done by the statement of a...