We present a finite difference method for solving parabolic partial integro-differential equations with possibly singular kernels which arise in option pricing theory when the random evolution of the underlying asset is driven by a Levy process or, more generally, a time-inhomogeneous...

Motivated by stylized statistical properties of interest rates, we propose a modeling approach in which the forward rate curve is described as a stochastic process in a space of curves. After decomposing the movements of the term structure into the variations of the short rate, the long rate and...

Options markets offer an interesting example of the adaptation of a population to a complex environment, through trial and error and by 'natural' selection. Guided by the Black-Scholes theory but constrained by the fact that mispricing leads to arbitrage opportunities, options markets agree on...

The prices of index options at a given date are usually represented via the corresponding implied volatility surface, presenting skew/smile features and term structure which several models have attempted to reproduce. However the implied volatility surface also changes dynamically over time in a...

This paper reviews various methods for extracting statistical information implicit in market prices of options. We present several methods for state price densities from options paneldata: lognormal Edgeworth expansions, cumulant expansions, Hermite polynomial expansions, non-parametric...

The clearing of over-the-counter transactions through central counterparties (CCPs), one of the pillars of financial reform following the crisis of 2007-2008, has promoted CCPs as key elements of the new global financial architecture. It is important to examine how these reforms have affected...

The clearing of over-the-counter transactions through central counterparties (CCPs), one of the pillars of financial reform following the crisis of 2007-2008, has promoted CCPs as key elements of the new global financial architecture. Given the cost of implementing central clearing mandates and...

We propose an analytically tractable class of models for the dynamics of a limit order book, described as the solution of a stochastic partial differential equation (SPDE) with multiplicative noise. We provide conditions under which the model admits a finite dimensional realization driven by a...

We perform an empirical investigation of 'market impact' of trades using a large dataset of transactions executed by institutional investors in the US equity market. We find that price variations during trade execution are mainly driven by the aggregate order flow imbalance rather than the...

We present a network model for investigating the impact on systemic risk of central clearing of over the counter (OTC) credit default swaps (CDS). We model contingent cash flows resulting from CDS and other OTC derivatives by a multi-layered network with a core-periphery structure, which is...