In this paper we apply the Kalman filter to a state formulation of a multi-factor term structure model allowing for measurement errors in the data. We estimate one and two factor models using panel data allowing the cross sectional and dynamic implications of the yield curve to be taken into...

Reducing the number of factors in a model by reducing the rank of a correlation matrix is a problem that often arises in finance, for instance in pricing interest rate derivatives with Libor market models. A simple iterative algorithm for correlation rank reduction is introduced, the eigenvalue...

Levy processes can be used to model asset return's distributions. Monte Carlo methods must frequently be used to value path dependent options in these models, but Monte Carlo methods can be prone to considerable simulation bias when valuing options with continuous reset conditions. This paper...

Evidence from the financial markets suggests that empirical returns distributions, both historical and implied, do not arise from diffusion processes. A growing literature models the returns process as a Levy process, finding a number of explicit formulae for the values of some derivatives in...