In this paper, we introduce an extension to the LIBOR Market model that is suitable to incorporate both sudden market shocks as well as changes in the overall economic climate into the interest rate dynamics. This is achieved by substituting the simple diffusion process of the original LIBOR...

A Markovian Projection is investigated for the Local Stochastic Volatility Libor Market Model. An approximation based on the Log Normal process is introduced. In this approximation, the Markovian Projection is fitted to the CEV model rather than to Displaced Diffusion. The relationship with a...

We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the asset is driven by Brownian motion, an associated "master...

We examine how medium-term movements in real exchange rates and GDP vary with international financial conditions. For this purpose, we study the international transmission of productivity shocks across a variety of IRBC models that incorporate different assumptions about the persistence of...

This paper describes expectations and Buy-Sell transactions of assets as ground for modeling trading volume and price fluctuations. We study simple model of mutual relations between transactions and expectations and derive economic equations that describe disturbances of asset prices, trading...

The tick structure of the financial markets entails that price changes observed at very high frequency are discrete. Departing from this empirical evidence we develop a new model to describe the dynamic properties of multivariate time-series of high frequency price changes, including the high...

We construct a state-and-time discrete martingale which is calibrated globally to a set of given input option prices which may exhibit arbitrage. We also provide a method to take small steps, fully consistent with the transition kernels of the large steps. The method's robustness vs. arbitrage...

In this note, we introduce a simple approach for building volatility cubes of an interest-rate index based on the existing volatility cube of another index. Our approach can be formulated as a specific linear factor model, but it is dynamical in nature, and has the advantage of simple, explicit...

We consider a tractable affine stochastic volatility model that generalizes the seminal Heston (1993) model by augmenting it with jumps in the instantaneous variance process. In this framework, we consider options written on the realized variance, and we examine the impact of the distribution of...

Starting from the premise that hedging pressure is based on limited market efficiency I provide an analogy that electricity markets over years behave like intraday stock or FX markets during the liquidation of a block trade. In this endeavour I relate the returns of some liquidity exploitation...