We focus on two particular aspects of model risk: the inability of a chosen model to fit observed market prices at a given point in time (calibration error) and the model risk due to the recalibration of model parameters (in contradiction to the model assumptions). In this context, we use...

The class of forward-LIBOR market models can, under certain volatility structures, produce unrealistically high long-dated forward rates, particularly for maturities and tenors beyond the liquid market calibration instruments. This paper presents a diagnostic tool for analysing the quantiles of...

This paper proposes a framework for pricing credit derivatives within the defaultable Markovian HJM framework featuring unspanned stochastic volatility. Motivated by empirical evidence, hump-shaped level dependent stochastic volatility specifications are proposed, such that the model admits...

This paper analyzes the volatility structure of commodity derivatives markets. The model encompasses stochastic volatility that may be unspanned by futures contracts. A generalized hump-shaped volatility specification is assumed that entails a finite-dimensional affine model for the commodity...

This paper presents a class of defaultable term structure models within the HJM framework with stochastic volatility. Under certain volatility specifications, the model admits finite dimensional Markovian structures and consequently provides tractable solutions for interest rate derivatives. We...

This paper considers a class of term structure models that is a parameterisation of the Shirakawa (1991) extension of the Heath, Jarrow and Morton (1992) model to the case of jump-diffusions. We consider specific forward rate volatility structures that incorporate state dependent Wiener...