Bond Yield curve is an important indicator of the borrowing costs and lending returns, is also one of the most observed indicator by traders in fixed income trading desk among investment banks. The shape of the yield curve can be normal, flat or inverted. In most cases, bond yield curve is...

This paper develops a decentralized theory that determines the fair value of the yield-to-maturity of a bond or bond portfolio based purely on the near-term dynamics of the yield itself. The theory decomposes the yield into three components: its expected change, its risk premium, and its...

Realized variance option and options on quadratic variation normalized to unit expectation are analyzed for the property of monotonicity in maturity for call options at a fixed strike. When this condition holds the risk neutral densities are said to be increasing in the convex order. For Lévy...

The absolute values of the spot and strike derivatives of the vanilla option price are probabilities of finishing in the money under different numeraires. At each fixed term, one of these probabilities can be related to the other using a convex distortion function. Using results from convex...

We study an asset pricing model in which a Stochastic Discount Factor (SDF) and a growth process have independent increments and are affected by a common stochastic clock. The stochastic clock is a strictly increasing process that may include a persistent component, that we call comonotonic, and...

In finance, optionality is a possible property of a financial contract giving the owner a choice between two or more assets. For example, a convertible bond has optionality because its owner must choose between having a bond or having some shares of stock. In mathematics, a binary operation acts...

A local volatility model is enhanced by the possibility of a single jump to default. The jump has a hazard rate that is the product of the stock price raised to a prespecified negative power and a deterministic function of time. The empirical work uses a power of -1.5. It is shown how one may...

We introduce a new derivative security called a stoption.After paying an upfront premium, the owner of a stoption accrues realized price changes in some underlying securityuntil the exposure is stopped by the owner.Upon stopping, the reward is the sum of all of the previous price changes plus a...

Three processes reflecting persistence of volatility are initially formulated by evaluating three Lévy processes at a time change given by the integral of a mean-reverting square root process. The model for the mean-reverting time change is then generalized to include non-Gaussian models that...