The main goal of this paper is to better understand the behavior of credit spreads in the past and the potential risk of unexpected future credit spread changes. One important consideration to note regarding credit spreads is the fact that bond spreads contain a liquidity premium, which...

This paper demonstrates how to value American interest rate options under the jump extended constant-elasticity-of-variance (CEV) models. We consider both exponential jumps (see Duffie, Pan, and Singleton (2000)) and lognormal jumps (see Johannes (2004)) in the short rate process. We show how to...

We investigate the factor structure of the term structure of interest rates and argue that characterizing the minimal dimension of the data-generating process is more challenging than currently appreciated. To circumvent these difficulties, we introduce a novel nonparametric bootstrap that is...

We start by presenting a reduced-form multiple default type of model and derive abstract results on the influence of a state variable X on credit spreads, when both the intensity and the loss quota distribution are driven by X. The aim is to apply the results to a concrete real life situation,...

In this paper we compare the in-sample fit and out-of-sample forecasting performance of no-arbitrage quadratic and essentially affine term structure models, as well as the dynamic Nelson-Siegel model. In total eleven model variants are evaluated, comprising five quadratic, four affine and two...

Blockchain, based on the distributed ledger technology, provides immediate settlement of transactions of digital assets and direct ownership. Since settlement of transactions is immediate, the blockchain system requires an ultra short tenor interest rate curve that is always up-to-date. Today,...

We consider the subject of approximating tail probabilities in the general compound renewal process framework, where severity data are assumed to follow a heavy-tailed law (in that only the first moment is assumed to exist). By using weak convergence of compound renewal processes to Lévy...

The model derives risky corporate bond prices (or equivalently credit spreads) subject to credit default and migration risk, based on an extended version of the Jarrow, Lando and Turnbull model, under a risk-neutral framework, as a result of the simulation of a continuous time, time-homogeneous...