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This paper proposes the use of analytical approximations to price an heterogeneous basket option combining commodity prices, foreign currencies and zero-coupon bonds. We examine the performance of three moment matching approximations: inverse gamma, Edgeworth expansion around the lognormal and...
Persistent link: https://www.econbiz.de/10005696255
This paper proposes the use of analytical approximations to price an heterogeneous basket option combining commodity prices, foreign currencies and zero-coupon bonds. The performance of three moment matching approximations is examined: inverse gamma, Edgeworth expansion around the lognormal and...
Persistent link: https://www.econbiz.de/10010934067
Basket options are among the most popular products of the new generation of exotic options. This attraction is explained by the fact that they can efficiently and simultaneously hedge a wide variety of intrinsically different financial risks. They are flexible enough to include all the risks...
Persistent link: https://www.econbiz.de/10005015299
Persistent link: https://www.econbiz.de/10010638698
An important research area of the corporate yield spread literature seeks to measure the proportion of the spread explained by factors such as the possibility of default, liquidity or tax differentials. We contribute to this literature by assessing the ability of observed macroeconomic factors...
Persistent link: https://www.econbiz.de/10005015288
An important research question examined in the recent credit risk literature focuses on the proportion of corporate yield spreads which can be attributed to default risk. Past studies have verified that only a small fraction of the spreads can be explained by default risk. In this paper, we...
Persistent link: https://www.econbiz.de/10005696303
"An important research question examined in the credit risk literature focuses on the proportion of corporate yield spreads attributed to default risk. This topic is reexamined in light of the different issues associated with the computation of default probabilities obtained from historical...
Persistent link: https://www.econbiz.de/10008676232
We examine the ability of observed macroeconomic factors and the possibility of changes in regime to explain the proportion of yield spreads caused by the risk of default in the context of a reduced form model. For this purpose, we extend the Markov-switching risk-free term structure model of...
Persistent link: https://www.econbiz.de/10009142852
An important research area of the corporate yield spread literature seeks to measure the proportion of the spread that can be explained by factors such as the possibility of default, liquidity, tax differentials and market risk. We contribute to this literature by assessing the ability of...
Persistent link: https://www.econbiz.de/10008692988
This article proposes semi‐closed‐form solutions to value derivatives on mean reverting assets. A very general mean reverting process for the state variable and two stochastic volatility processes, the square‐root process and the Ornstein‐Uhlenbeck process, are considered. For both...
Persistent link: https://www.econbiz.de/10011197267