Calibrating option pricing models to market prices often leads to optimisation problems to which standard methods (like such based on gradients) cannot be applied. We investigate two models: Heston’s stochastic volatility model, and Bates’s model which also includes jumps. We discuss how to...

Given a set of time series, it is of interest to discover subsets that share similar properties. For instance, this may be useful for identifying and estimating a single model that may fit conveniently several time series, instead of performing the usual identification and estimation steps for...

Business tendency survey indicators are widely recognized as a key instrument for business cycle forecasting. Their leading indicator property is assessed with regard to forecasting industrial production in Russia and Germany. For this purpose, vector autoregressive (VAR) models are specified...

The recent financial crisis has underlined that banks no longer simply accumulate deposits and lend a fraction to their clients. Instead they use interbank markets and structured finance to increase their loan book. This has implications for the understanding of interest rate pass through since...

Nonlinear nonstationary models for time series are considered, where the series is generated from an autoregressive equation whose coe±cients change both according to time and the delayed values of the series itself, switching between several regimes. The transition from one regime to the next...

Innovations, be they radical new products or technology improvements are widely recognized as a key factor of economic growth. To identify the factors triggering innovative activities is a main concern for economic theory and empirical analysis. As the number of hypotheses is large, the process...

This paper presents a survey on the application of heuristic optimization techniques in the broad field of finance. Heuristic algorithms have been extensively used to tackle complex financial problems, which traditional optimization techniques cannot efficiently solve. Heuristic optimization...

Many optimisation problems in finance and economics have multiple local optima or discontinuities in their objective functions. In such cases it is stressed that ‘good starting points are important’. We look into a particular example: calibrating a yield curve model. We find that while...

According to the latest Basel framework of Banking Supervision, financial institutions should internally assign their borrowers into a number of homogeneous groups. Each group is assigned a probability of default which distinguishes it from other groups. This study aims at determining the...

Linear regression is widely-used in finance. While the standard method to obtain parameter estimates, Least Squares, has very appealing theoretical and numerical properties, obtained estimates are often unstable in the presence of extreme observations which are rather common in financial time...