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Brief communication - Cash-settled swaptions and no-arbitrage - The author derives no-arbitrage conditions that must be satisfied by the pricing function of cash-settled swaptions. He then identifies a strategy leading to an arbitrage when such conditions are met.

Mercurio, Fabio - In: Risk : managing risk in the world's financial markets 21 (2008) 2, pp. 96-99

Persistent link: https://www.econbiz.de/10007917923

Inflation - Inflation modelling with SABR dynamics - The authors introduce a new forward Consumer Price Index model that is based on a multi-factor volatility structure and leads to SABR-like dynamics for forward inflation rates. Their approach reconciles zero-coupon and year-on-year quotes, giving both fast and accurate calibration to market options data. Explicit formulas for year-on-year caps ...

Mercurio, Fabio; Moreni, Nicola - In: Risk : managing risk in the world's financial markets 22 (2009) 6, pp. 98-103

Persistent link: https://www.econbiz.de/10008265090

IMPLIED VOLATILITY: Smiling at convexity - The price of a constant maturity swap (CMS)-based derivative is largely determined by the value of swaption volatilities at extreme strikes. The authors propose a simple procedure for stripping consistently implied volatilities and CMS adjustments from the market quotes of swaption smiles and CMS swap spreads.

Mercurio, Fabio; Pallavicinl, Andrea - In: Risk : managing risk in the world's financial markets 19 (2006) 8, pp. 64-69

Persistent link: https://www.econbiz.de/10007301214

Consistent pricing and hedging of an FX options book

Bisesti, Lorenzo; Castagna, Antonio; Mercurio, Fabio - In: The Kyoto economic review 74 (2005) 1, pp. 65-83

Persistent link: https://www.econbiz.de/10009934646

Interest rate derivatives - The basis goes stochastic - The one-curve world of pre-crisis modelling is long gone — Now derivatives desks need to use a variety of fixings depending on the product traded. Here, the authors show how a stochastic multi-curve world can be modelled excluding arbitrage.

Mercurio, Fabio; Xie, Zhenqiu - In: Risk : managing risk in the world's financial markets 25 (2012) 12, pp. 78-83

Persistent link: https://www.econbiz.de/10010061836

Inflation derivatives - Reducing approximation error in LPI swaps - Brody, Crosby & Li (2008) introduced a quasi-analytical method to price limited price index (LPI) swaps with the Jarrow & Yildirim (2003) model. Their method works well for short-term contracts, but the approximation error for long maturities may be far from being negligible. In this article, the authors modify the Brody, Crosby & ...

Zhang, Joshua Xingzhi; Mercurio, Fabio - In: Risk : managing risk in the world's financial markets 24 (2011) 4, pp. 76-80

Persistent link: https://www.econbiz.de/10008996124

Interest rate derivatives A Libor market model with a stochastic basis The advent of the financial crisis made the previously negligible bases between different overnight interest rates explode. The author adapts the classic Brace-Gatarek-Musiela Libor market model to the multiple curve environment, and shows how to price interest rate derivatives based on single or multiple Libor tenors under ...

Mercurio, Fabio - In: Risk : managing risk in the world's financial markets 23 (2010) 12, pp. 84-90

Persistent link: https://www.econbiz.de/10008766078

CUTTING EDGE - Interest rates - Joining the SABR and Libor models together - The authors propose a Libor market model consistent with SABR dynamics and develop approximations that allow for the use of the SABR formula with modified inputs. They verify that the approximations are acceptably precise, imply good fitting of market data and produce regular Libor rate parameters. They finally show that ...

Mercurio, Fabio; Morini, Massimo - In: Risk : managing risk in the world's financial markets 22 (2009) 3, pp. 80-85

Persistent link: https://www.econbiz.de/10008233229

CUTTING EDGE: INFLATION-INDEXED SECURITIES Inflation with a smile - In the current inflation-indexed markets most traded options have zero or even negative strikes. This highlights the need for a smile-consistent valuation of caps and floors on inflation rates. To this end, the authors propose a stochastic volatility model for forward consumer price indexes, with volatility dynamics following a ...

Mercurio, Fabio; Moreni, Nicola - In: Risk : managing risk in the world's financial markets 19 (2006) 3, pp. 70-75

Persistent link: https://www.econbiz.de/10007221919

Jumping with Default : Wrong-Way-Risk Modeling for Credit Valuation Adjustment

Li, Minqiang - 2016

We investigate credit value adjustments (CVAs) in the presence of wrong-way risk (WWR) by introducing jumps at default to model correlation between counterparty's default and relevant risk factors. We focus on the foreign-exchange and interest-rate cases, presenting efficient CVA approximations...

Persistent link: https://www.econbiz.de/10013004752

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