We consider the filtering model of Frey & Schmidt (2012) stated under the real probability measure and develop a method for estimating the parameters in this framework by using time-series data of CDS index spreads and classical maximum-likelihood algorithms. The estimation-approach incorporates...

A one-factor asset pricing model with an Ornstein–Uhlenbeck process as its state variable is studied under partial information: the mean-reverting level and the mean-reverting speed parameters are modeled as hidden/unobservable stochastic variables. No-arbitrage pricing formulas for derivative...

Our objective is to test for evidence of information asymmetry in the mortgage servicing market. Does the sale of mortgage servicing rights (MSR) by the initial lender to a second servicing institution unveil any residual asymmetric information? We are the first to analyze the originator's...

We present a new method to sample random variables through the use of orthogonal polynomial expansions of the associated quantile function that utilize the inverse transform technique. In particular, we obtain an explicit representation of the quantile function through an orthogonal expansion...

I introduce a model to estimate the risk-neutral density. Current estimation techniques use a single mathematical model to interpolate option prices on two option dimensions: strike price and time-to maturity (TTM). I propose to use B-splines with at-the-money knots for the strike price...

In this paper we develop a local correlation model which uses a universal function g(t,m_i,m_j) to describe the local correlation between any asset-asset pair of a basket of underlyings. The arguments m_i,m_j are spot moneynesses.The universal function is calibrated to fit the implied...

Equity basket correlation is an important risk factor. It characterizes the strength of linear dependence between assets and thus measures the degree of portfolio diversification. It can be estimated both under the physical measure from return series, and under the risk neutral measure from...

When designing multi-asset stochastic volatility (SV) or local-stochastic volatility (LSV) models, one of the main issues involves the construction of the global correlation matrix. Typically correlation matrices for each assets' degrees of freedom are set and the challenge is to build a global...

The Multi Variate Mixture Dynamics model is a tractable, dynamical, arbitrage-free multivariate model characterized by transparency on the dependence structure, since closed form formulae for terminal correlations, average correlations and copula function are available. It also allows for...

Recent evolutions of the business of exotic products has rendered the use of stochastic volatility models necessary. Calibration of single stochastic volatility models has already been discussed in several articles. The purpose of this paper is to build a parameterization of the correlation...