This paper proposes a testable continuous-time term-structure model with recursive utility to investigate structural relationships between the real economy and the term structure of real and nominal interest rates. Under mean-reverting expectation on real output growth and inflation, this paper...

This paper develops a Fourier transform method with an asymptotic expansion approach for option pricing. The method is applied to European currency options with a libor market model of interest rates and jump-diffusion stochastic volatility models of spot exchange rates. In particular, we derive...

This paper studies the accuracy of a singular perturbation method for option pricing under a stochastic volatility model ([8]). First, through numerical experiments we confirm that the first order approximation provides sufficiently accurate option prices in a fast mean-reversion case of the...

This paper proposes a new method to a bond portfolio problem in a multi-period setting. In particular, we apply a factor allocation approach to constructing the optimal bond portfolio in a class of multi-factor Gaussian yield curve models. In other words, we consider a bond portfolio problem in...

In the present paper, we propose a new computational technique with the Asymptotic Expansion (AE) approach to achieve variance reduction of the Monte-Carlo integration appearing especially in finance. We extend the algorithm developed by Takahashi and Yoshida (2003) to the second order...

This paper proposes a new three-factor model with stochastic mean reversions for commodity prices and derives the closed-form solution for the term structure of futures prices. It also examines the relation of our model with Schwartz(1997) type models that explicitly include interest rates and...

This paper proposes a method to price convertible bonds with credit risk using Duffie-Singleton approach to handle credit risk. As such it also provides a method to replicate convertibles by trading common stocks and corporate bonds of the issuing company. Empirical comparison with existing...

This paper proposes a structural model to price credit risk of firms with short-term and long-term debts. This enables one to distinguish between default probabilities in the short run and in the long run, and to identify how the composition of debts affects credit risk. We endogenize the banks'...

This paper provides a new method to construct a dynamic optimal portfolio for asset management. This method generates a target payoff distribution using the cheapest dynamic trading strategy. As a practical example, the method is applied to hedge fund replication. This dynamic portfolio strategy...

This paper provides a survey on an asymptotic expansion approach to valuation and hedging problems in nance. The asymptotic expansion is a widely applicable methodology for analytical approximations of expectations of certain Wiener functionals. Hence not only academic researchers but also...