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McCloud, Paul - 2013

Collateral discounting recognises the value of funding for derivatives, which has gained prominence in recent years as … basis spreads have widened in response to the financial crises. This article considers the impact of collateral volatility … expressions are derived for convexity adjustments and collateral options, in a form that easily integrates into curve building and …

Persistent link: https://www.econbiz.de/10013082442

Prices and volatilities in the corporate bond market

Bao, Jack; Chen, Jia; Hou, Kewei; Lu, Lei - 2015

We document a strong positive cross-sectional relation between corporate bond yield spreads and bond return volatilities. As corporate bond prices are generally attributable to both credit risk and illiquidity as discussed in Huang and Huang (2012), we apply a decomposition methodology to...

Persistent link: https://www.econbiz.de/10011772268

CDO and HAC

Choroś, Barbara; Härdle, Wolfgang; Okhrin, Ostap - 2009

Modelling portfolio credit risk is one of the crucial challenges faced by financial services industry in the last few years. We propose the valuation model of collateralized debt obligations (CDO) based on copula functions with up to three parameters, with default intensities estimated from...

Persistent link: https://www.econbiz.de/10003871765

Credit Spreads and State-Dependent Volatility : Theory and Empirical Evidence

Perrakis, Stylianos - 2017

We generalize the asset dynamics assumptions of Leland (1994b) and Leland and Toft (1996) to a much richer class of models. By assuming a stationary corporate debt structure with constant principal, coupon payment and average maturity through continuous retirement and refinancing as long as the...

Persistent link: https://www.econbiz.de/10012973386

Modeling Credit Spreads Under Multifactor Stochastic Volatility

Marabel Romo, Jacinto - 2014

The empirical tests of traditional structural models of credit risk tend to indicate that such models have been unsuccessful in the modeling of credit spreads. To address these negative findings some authors introduce single-factor stochastic volatility specifications and/or jumps.In the yield...

Persistent link: https://www.econbiz.de/10013063536

What option prices tell us about the ECB's unconventional monetary policies

Olijslagers, Stan; Petersen, Annelie; Vette, Nander de; … - 2018

We use a series of different approaches to extract information about crash risk from option prices for the Euro-Dollar exchange rate, with each step sharpening the focus on extracting more specific measures of crash risk around dates of ECB measures of Unconventional Monetary Policy. Several...

Persistent link: https://www.econbiz.de/10011940034

Unspanned stochastic volatility in the multi-factor CIR model

Filipović, Damir; Larsson, Martin; Statti, Francesco - 2017

Empirical evidence suggests that fixed income markets exhibit unspanned stochastic volatility (USV), that is, that one cannot fully hedge volatility risk solely using a portfolio of bonds. While Collin-Dufresne and Goldstein (2002) showed that no two-factor Cox-Ingersoll-Ross (CIR) model can...

Persistent link: https://www.econbiz.de/10011761277

The term structure of equity and variance risk premia

Aït-Sahalia, Yacine; Karaman, Mustafa; Mancini, Loriano - 2018

We study the term structure of variance swaps, equity and variance risk premia. A model-free analysis reveals a significant price jump component in variance swap rates. A model-based analysis shows that investors' willingness to ensure against volatility risk increases after a market drop. This...

Persistent link: https://www.econbiz.de/10011899885

Zero-coupon interest rates : evaluating three alternative datasets

Díaz Pérez, Antonio; Jareño, Francisco; Navarro … - 2018

The zero-coupon yield curve is a common input for most financial purposes. The authors consider three popular yield curve datasets, and explore the extent to which the decision as to what dataset to use for an application may have implications on the results. The paper illustrates why such...

Persistent link: https://www.econbiz.de/10011901875

The contribution of frictions to expected returns

Hirakiy, Kazuhiro; Skiadopoulos, George - 2018

We derive a model-free option-based formula to estimate the contribution of market frictions to expected returns (CFER) within an asset pricing setting. We estimate CFER for the U.S. optionable stocks. We document that CFER is sizable, it predicts stock returns and it subsumes the effect of...

Persistent link: https://www.econbiz.de/10011932555

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