Forecasting financial crises has enormous practical importance. In this paper we propose a new measure of risk of extreme loss using data of a cross-section of asset prices. This measure presents as practical advantage the fact that it does not depend on the existence of a liquid market of...

Multivariate Affine term structure models have been increasingly used for pricing derivatives in fixed income markets. In these models, uncertainty of the term structure is driven by a state vector, while the short rate is an affine function of this vector. The model is characterized by a...

The stochastic volatility model (SVPS) proposed by Fouque et al. (2000a) explores a rapid timescale fluctuation of the volatility process to end up with a parsimonious way of capturing the volatility smile implied by close to the money options. In this article we test the SVFPS model using...

This paper analyzes how including options in the estimation of a dynamic term structure model impacts the way it captures term structure movements. Two versions of a multi-factor Gaussian model are compared: One adopting only bonds data, and the other adopting a joint dataset of bonds and...

We provide approximation formulas for at-the-money asian option prices to extract volatility risk premium from a joint dataset of bonds and option prices. The dynamic model generates stochastic volatility and a time-varying volatility risk premium, which explicitly depends on the average cross...

We derive the Green's function for the Black-Scholes partial differential equation with time-varying coefficients and time-dependent boundary conditions. We provide a thorough discussion of its implementation within a pricing algorithm that also accommodates American style options. Greeks can be...

We introduce closed-form transition density expansions for multivariate affine jump-diffusion processes. The expansions rely on a general approximation theory which we develop in weighted Hilbert spaces for random variables which possess all polynomial moments. We establish parametric conditions...

The Amin/Bodurtha framework was developed for the valuation of American-style financial instruments driven by three sources of uncertainty— domestic interest rate risk, foreign interest rate risk and exchange rate risk. The model is not only appropriate for pricing a number of financial...