The recent financial crisis caused dramatic widening and elevated volatilities among basis spreads in cross currency as well as domestic interest rate markets. Furthermore, the widespread use of collateral has made the effective funding cost of financial institutions for the trades significantly...

We propose a generalized arbitrage-free Nelson-Siegel model under the HJM framework. It features unspanned stochastic volatility factors while maintaining a Nelson-Siegel factor loading structure. The price of the interest rate derivatives, including European options, Caps and Swaptions are then...

We provide explicit solutions of certain forward-backward stochastic differential equations (FBSDEs) with quadratic growth. These particular FBSDEs are associated with quadratic term structure models of interest rates and characterize the zero-coupon bond price. The results of this paper are...

A new model, the Poisson Q, is presented which determines the term risk premium in markets from the Ornstein Uhlenbeck version of the Poisson intensity process. The risk neutral properties are obtained by Fourier frequency analysis and a logarithmic Cauchy change in measure. The Poisson Q...

We put forward a constructive definition of electricity forward price curve with cross-sectional timescale encompassing hourly frequency upward. The curve is jointly consistent to both risk-neutral market information, as represented by base load and peak load futures quotes, and historical...

We revisit the problem of pricing and hedging plain vanilla single-currency interest rate derivatives using multiple distinct yield curves for market coherent estimation of discount factors and forward rates with different underlying rate tenors. Within such double-curve-single-currency...

We present an affine arbitrage-free dynamic term-structure model based on a representation of instantaneous forward rates as sum of exponentials. The model, which is Gaussian and belongs to the class of Heath-Jarrow-Morton-type models, is intuitively appealing as a suitable linear combination of...

We study a novel implementation of the explicit and the implicit Crank-Nicolson (CN) numerical schemes for solving time-dependent Parabolic Partial Differential Equations (PDEs) in one spatial dimension in a variety of applications in computational finance related with the the One-Factor...

This work analyzes and proposes solutions for subtle, but relevant, problems related to the EONIA curve calibration. The first issue examined is how to deal with jumps and turn-of-year effects. The second point is related to the problem caused by imperfect concatenation between spot starting OIS...

We estimate a no-arbitrage term structure model of U.S. Treasury yields and corporate bond spreads with both economic factors and latent factors as drivers of term structure dynamics. We consider two sets of economic factors: macro factors consisting of inflation and real activity, and financial...