I show that an important no-arbitrage consistent but costly collateral rental yield contributes to about two-thirds of the standard CIP violations. I measure this yield using two approaches applied to short- and long-term CIP horizons. First, I assume that the yield is observable and proxy it...

There is nothing like a market crash to focus the mind on the importance of risk management and, more specifically, tail risk management. Because tail events are generally systemic in nature and are characterised by elevated correlations and liquidity squeezes, effective tail risk management is...

This article describes how fuzzy logic can be used to make insurance pricing decisions that consistently consider supplementary data, including vague or linguistic objectives of the insurer. The theory of fuzzy logic was developed in the 1970s to improve the accuracy and efficiency of expert...

This paper reexamines the issue of unspanned stochastic volatility (USV) in bond markets and the puzzle of poor relative pricing between bonds and bond options. I make a distinction between the "weak USV" and the "strong USV" scenarios, and analyze the evidence for each of them. I argue that the...

Complex structured products especially collateralized debt obligations (CDOs) were at the center of the recent credit crisis. This paper explores two structural sources of CDO mispricing: modeling difficulty and data limitation. Comparing pricing outputs among models with different...

After Lehman default (credit crisis 2007), practitioners considered the default risk as a major risk. The regulators pushed the industry to use collateral in order to reduce the risk. In this new world, we want to see how this new considerations affect the theory related to the Partial...

We show that forward rates can be modeled as ABCD parametric tenor basis spreads over the underlying overnight rate curve. This is possible for both continuously and simply compounded forward rates, with a simple approximation for converting between the corresponding basis. Increasing...

We solve a dynamic general equilibrium model with generalized disappointment aversion preferences and continuous state endowment dynamics. We apply the framework to the term structure of interest rates and show that the model generates an upward sloping term structure of nominal interest rates,...

Over the past decade, many central banks reduced interest rates to near-zero levels. I show that this has important implications for the dynamics of asset prices. In both the US and Japan, one such effect was that the correlation of stock and nominal bond returns decreased sharply as the short...

We generalize the algorithmic differentiation method proposed by Antonov (2016) from price Greeks to XVA Greeks. This method, named Backward Differentiation (BD), was developed in the context of computing price or PV Greeks for individual callable exotic trades.We start by treating cases where...