We investigate the characteristic functions of multi-factor Cheyette Models and the application to the valuation of interest rate derivatives. The model dynamic can be classiffied as an affine-diffusion process implying an exponential structure of the characteristic function. The characteristic...

In this paper we discuss an analytical method in pricing contingent claims of European style on the assets, whose state variables follow a multi-dimensional Levy process. We give explicit formulae for the hypothetical ``two-price'' contingent claim prices by means of the conditional...

We develop a novel filtering and estimation procedure for parametric option pricing models driven by general affine jump-diffusions. Our procedure is based on the comparison between an option-implied, model-free representation of the conditional log-characteristic function and the model-implied...

We focus on closed-form option pricing in Heston's stochastic volatility model, in which closed-form formulas exist only for few option types. Most of these closed-form solutions are constructed from characteristic functions. We follow this approach and derive multivariate characteristic...

Countless test statistics can be written as quadratic forms in certain random vectors, or ratios thereof. Consequently, their distribution has received considerable attention in the literature. Except for a few special cases, no closed-form expression for the cdf exists, and one resorts to...

A large number of exact inferential procedures in statistics and econometrics involve the sampling distribution of ratios of random variables. If the denominator variable is positive, then tail probabilities of the ratio can be expressed as those of a suitably defined difference of random...

This paper considers Value at Risk measures constructed under a discrete mixture of normal distribution on the innovations with time-varying volatility, or MN-GARCH, model. We adopt an approach based on the continuous empirical characteristic function to estimate the param eters of the model...

This paper investigates the properties of a linearized stochastic volatility (SV) model originally from Harvey et al. (Rev Econ Stud 61:247–264, <CitationRef CitationID="CR20">1994</CitationRef>) under an extended flexible specification (discrete mixtures of normal). General closed form expressions for the moment conditions are derived....</citationref>

This paper investigates an e±cient estimation method for a class of switching regressions based on the characteristic function (CF). We show that with the exponential weighting function, the CF based estimator can be achieved from minimizing a closed form distance measure. Due to the...

This article studies two extensions of the compound Poisson process with iid Gaussian innovations which are able to characterize important features of high frequency security prices. The first model explicitly accounts for the presence of the bid/ask spread encountered in price-driven markets....