A small but ambitious literature uses affine arbitrage-free models to estimate jointly U.S. Treasury term premiums and the term structure of equity risk premiums. Within this approach, this paper identifies the parameter restrictions that are consistent with a simple dividend discount model,...

A small but ambitious literature uses affine arbitrage-free models to estimate jointly U.S. Treasury term premiums and the term structure of equity risk premiums. Within this approach, this paper identifies the parameter restrictions that are consistent with a simple dividend discount model,...

VaR_Delta-Normal fails in two counts: subadditivity and potentially producing losses larger than its portfolio value. This paper solves the second inconsistency developing formulas derived from a put option, named PVaR_Delta-Normal and Put_Expected_Shortfall, PSF_Delta-Normal; the latter also...

The 30-year U.S. swap spreads have been negative since September 2008. We offer a novel explanation for this persistent anomaly. Through an illustrative model, we show that underfunded pension plans optimally use swaps for duration hedging. Combined with dealer banks' balance sheet constraints,...

In this paper, we develop and experiment an intensity based multi-factor model, which incorporates the joint modelling of default, prepayment and recovery risks. In this way, the model provides a link between the credit default swap (CDS) and the loan-only credit default swap (LCDS) markets. The...

In this paper, we introduce a new robust model for modelling and pricing LCDX tranches. We extend the generic one-factor model of [1], which was developed for modelling and pricing of a synthetic CDO of CDSs, to a model for tranched portfolio of loan-only CDSs (LCDSs). The essential difference...

The Loan CDS (LCDS) contract is in some aspects similar to a standard unsecured CDS contract, except for two main features. First, the underlying reference obligation for LCDS is secured loan. Second, the LCDS contract is canceled if there is no reference obligation available, whereas a CDS...

We address three questions relating to the interest rate options market: What is the shape of the smile? What are the economic determinants of the shape of the smile? Do these determinants have predictive power for the future shape of the smile and vice versa? We investigate these issues using...

We show that log-dividends (d) and log-prices (p) are cointegrated, but, instead of de facto assuming the stationarity of the classical log dividend–price ratio, we allow the data to reveal the cointegration vector between d and p. We define the modified dividend–price ratio (mdp), as the...

A mechanical rebalancing strategy, such as a monthly or quarterly reallocation towards fixed portfolio weights, is an active strategy. Winning asset classes are sold and losers are bought. During crises, when markets are often trending, this can lead to substantially larger drawdowns than a...