Abstract: In this paper we compare market prices of credit default swaps with model prices. We show that a simple reduced form model with a constant recovery rate outperforms the market practice of directly comparing bonds' credit spreads to default swap premiums. We find that the model works...

We present a parsimonious multi-asset Heston model. All single-asset sub-models follow the well-known Heston dynamics and their parameters are typically calibrated on implied market volatilities. We focus on the calibration of the correlation structure between the single-asset marginals in the...

If a probability distribution is sufficiently close to a normal distribution, its density can be approximated by a Gram/Charlier Series A expansion. In option pricing, this has been used fit risk-neutral asset price distributions to the implied volatility smile, ensuring an arbitrage-free...

The Libor Market Model (LMM) describes the evolution of a yield curve through equations for a discrete set of forward rates. In the original version, the rate dynamic was log-normal. The rate dynamic has been extended. The main result presented here is a generic approximation that provides an...

We investigate the relation between derivatives use and corporations' cost of equity capital. Using a large sample of non-financial firms, we compute and analyze (i) the relative cost of equity of firms that use derivatives and those that do not; and (ii) the change in cost of equity experienced...

This study evaluates the predictive content of the 3-month Euribor contracts futures. We initially show that there is a forecast error on these contracts, on average positive and increasing with the forecast horizon. Then, we propose a method for correcting futures rates thanks to macroeconomic...

This paper tests the random walk hypothesis and weak form market efficiency in the VIX futures market using a variety of tests. A unit root in the aggregated market price series suggests that the VIX futures market is efficient. For the individual VIX futures price series, 51 of 54 futures...

Recently, the Shanghai Futures Exchange (SHFE) introduced gold futures trading in China. This paper is the first to study the SHFE gold futures, and to evaluate the futures hedging effectiveness since the introduction. The results show that hedging with gold futures reduces the variance of a...

Electricity is not storable. As a consequence, electricity demand and supply need to be in balance at any moment in time as a shortage in production volume cannot be compensated with supply from inventories. However, if the installed power supply capacity is very flexible, variation in demand...

This paper examines the impact of macroeconomic news announcements on the Australian stock index futures market during the financial crisis of 2007-2008. The financial crisis is characterized by higher price volatility and trading activity, wider bid-ask spreads and lower depth in the futures...