In this paper we look at two areas in the interest rate options market where arbitrage could be hiding. In the first section we derive a no-arbitrage condition for swaption prices with complementary expiry dates and tenors within the swaption cube. In the second section we propose an alternative...

This paper develops a quantitative model of trade, military conflicts, and defense spending. Trade liberalization between two countries reduces probability of an armed conict between them, causing both to cut defense spending. This in turn causes a domino effect on defense spending by other...

In the current low-interest-rate environment, extending option models to negative rates has become an important issue. This paper describes one such extension of the widely used SABR model. We stress that our solution is more natural and attractive than the shifted SABR.An exact formula is...

In this note, a class of nonlinear dynamic models under rational expectations is studied. A particular solution is found using a model reference adaptive technique via an extended Kalman filtering algorithm, for which initial conditions knowledge only is required.

A new and alternative quantile regression estimator is developed and it is shown that the estimator is root n-consistent and asymptotically normal. The estimator is based on a minimax ‘deviance function’ and has asymptotically equivalent properties to the usual quantile regression estimator....

Since the beginning of this century, the normal distribution has played a central role in the mathematical finance literature. However, major drawbacks insight this assumption rely in the absence of closed form expressions for both its cumulative and probability density functions. Additionally,...

The LLS stock market model (for a review see the book in Academic Press 2000: "Microscopic Simulation of Financial Markets; From Investor Behavior to Market Phenomena" by Levy, Levy and Solomon, ISBN: 0124458904) is a model of heterogeneous quasi-rational investors operating in a complex...

This paper develops a new computational approach for general multi- factor Markovian interest rate models. The early exercise premium is derived for general American options. The option cash flows are decomposed into fast and slowly varying components. The fast components are option independent...

This article appeared in Computer Science in Economics and Management (now Computational Economics). Parameter estimation problems for nonlinear systems are typically formulated as nonlinear optimization problems. For such problems, one has the usual difficulty that standard successive...

We have shown that Eaton's (1992) Markov chain is recurrent if and only if its conjugate partner is recurrent. This result may be viewed as an extension od Diebolt and Robert's (1994) Duality Principle. It it interesting from a theoretical standpoint in that Eaton's (1992) results can now be...