This study deals with the pricing and hedging of inflation-indexed bonds. Under foreign exchange analogy we model the nominal short rate, real short rate and logarithm of the price index with an affi ne Gaussian process. Using the underlying a ffine property, we compute the nominal and...

This study deals with the dynamic hedging of single-tranche collateralized debt obligations (STCDOs). As a first step, we specify a top-down affine factor model in which a catastrophic risk component is incorporated in order to capture the dynamics of super-senior tranches. Next, we derive the...

This paper provides a brief overview of the stochastic modeling of variance swap curves. Focus is on affine factor models. We propose a novel drift parametrization which assures that the components of the state process can be matched with any pre-speci fied points on the variance swap curve....