Model selection and model combination is a general problem in many areas. Especially, when we have several different candidate models and also have gathered a new data set, we want to construct a more accurate and precise model in order to help predict future events. In this paper, we propose a...

A general statistical modeling problem is that given a class of competing models and new data, how one can improve the overall model performance. In general, there exist two solutions for this problem, namely model selection and model combination. Model selection is to select a single best model...

This paper is intended to solve a central problem in recently developed feature-based model combination method (Xu and Golay, 2005), that is, how to choose candidate models. Through our analysis, we first conclude that the efficiency of model combination highly depends on the choice of candidate...

Model selection has become a central task in science. The classical model selection such as variable selection in multiple linear regression delivers interpretable models, but its instability is also well known. On the other hand, some shrinkage estimators enjoy the property of stability. To...

Implied volatility skew and smile are ubiquitous phenomena in the financial derivative market especially after the Black Monday 1987 crash. Various stochastic volatility models have been proposed to capture volatility skew and smile in derivative pricing and hedging. Almost 30 years after the...

Local volatility model is a relatively simple way to capture volatility skew/smile. In spite of its drawbacks, it remains popular among practitioners for derivative pricing and hedging. For long-dated options or interest rate/equity hybrid products, in order to take into account the effect of...

Inflation derivatives have been widely used by various institutions to transfer or hedge inflation risks. They have experienced substantial growth since early 2000s and a liquid market has been developing in both Europe and U.S. In order to price inflation derivatives, calculate their risks or...

In 2017 the Alternative Reference Rate Committee (ARRC) recommended the Secured Overnight Financing Rate (SOFR) as the replacement for USD LIBOR as the reference rate for use in derivatives and financial contracts. Since then SOFR-linked derivatives started to develop and their liquidities have...