Abstract We study the impact of central clearing of over-the-counter (OTC) transactions on counterparty exposures in a market with OTC transactions across several asset classes with heterogeneous characteristics. The impact of introducing a central counterparty (CCP) on expected interdealer...

Abstract Starting from the requirement that risk of financial portfolios should be measured in terms of their losses, not their gains, we define the notion of loss-based risk measure and study the properties of this class of risk measures. We characterize convex loss-based risk measures by a...

The paper contains a phenomenological description of the whole US forward rate curve (FRC), based on data in the period 1990-1996. It is found that the average deviation of the FRC from the spot rate grows as the square-root of the maturity, with a prefactor which is comparable to the spot rate...

We explore the precise link between option prices in exponential Lévy models and the related partial integro-differential equations (PIDEs) in the case of European options and options with single or double barriers. We first discuss the conditions under which options prices are classical...

We study the price impact of order book events--limit orders, market orders, and cancellations--using the NYSE Trades and Quotes data for fifty U.S. stocks. We show that, over short time intervals, price changes are mainly driven by the order flow imbalance (OFI), defined as the imbalance...

type="main" xml:lang="en" <p>We propose a market–based approach to the modelling of implied volatility, in which the implied volatility surface is directly used as the state variable to describe the joint evolution of market prices of options and their underlying asset. We model the evolution of...</p>

Motivated by stylized statistical properties of interest rates, we propose a modeling approach in which the forward rate curve is described as a stochastic process in a space of curves. After decomposing the movements of the term structure into the variations of the short rate, the long rate and...

We propose a simulation-free framework for stress testing the resilience of a financial network to external shocks affecting balance sheets. Whereas previous studies of contagion effects in financial networks have relied on large scale simulations, our approach uses a simple analytical criterion...