We examine the impact of interest rates benchmark reform and upcoming Libor transition on options markets. We address various modelling challenges the transition brings. We specifically focus on the impact of the clearing houses' discounting switch on swaptions, and the consequences of Libor...

The stochastic simulation model suggested by Bolder (2003) for the analysis of the federal government's debt-management strategy provides a wide variety of useful information. It does not, however, assist in determining an optimal debt-management strategy for the government in its current form....

We discuss how implied volatilities for OTC traded Asian options can be computed by combining Monte Carlo techniques with the Newton method in order to solve nonlinear equations. The method relies on accurate and fast computation of the corresponding vegas of the option. In order to achieve this...

Given a collection of single-market covariance matrix forecasts for different markets, we describe how to embed them into a global forecast of total risk.We do this by starting with any global covariance matrix forecast that contains information about cross-market correlations, and revising it...

The goal of this paper is to estimate time-varying covariance matrices. Since the covariance matrix of financial returns is known to change through time and is an essential ingredient in risk measurement, portfolio selection, and tests of asset pricing models, this is a very important problem in...

Tutorial on valuation of mortgage backed securities and collateralized mortgage obligations, including: - Structure of the mortgage market - Prepayment modeling - OAS analysis - Interest rate modeling - Numerical methods - Parallelization

This paper seeks to estimate a multifactor volatility model so as to describe the dynamics of interest rate markets, using data from the highly liquid but short term futures markets. The difficult problem of estimating such multifactor models is resolved by using a genetic algorithm to carry out...

In existing pricing theories, pricing of single-name credit default swaps and their options makes no reference of the market of defaultable bonds. This situation can cause price inefficiency and even generate arbitrage opportunities across the markets. In this paper, we introduce a new theory...

We propose a new multivariate DCC-GARCH model that extends existing approaches by admitting multivariate thresholds in conditional volatilities and conditional correlations. Model estimation is numerically feasible in large dimensions and positive semi-definiteness of conditional covariance...

A well-known pitfall of Markowitz portfolio optimization is that the sample covariance matrix, which is a critical input, is very erroneous when there are many assets to choose from. If unchecked, this phenomenon skews the optimizer towards extreme weights that tend to perform poorly in the real...