Implicit in interest rate derivatives are Arrow-Debreu prices (or state price densities, SPDs) that contain fundamental information for risk and portfolio management in interest rate markets. To extract such information from interest rate derivatives, we propose a non-parametric method to...

This study aims to evaluate the techniques used for the validation of default probability (DP) models. By generating simulated stress data, we build ideal conditions to assess the adequacy of the metrics in different stress scenarios. In addition, we empirically analyze the evaluation metrics...

This paper investigates the counterparty credit risk of interest rate swaps positions using the credit valuation adjustment (CVA) measure, and examines the potential dependency relationships between the probability of default (PD) and exposure at default (EAD). We empirically tested, using...

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...

In this paper a multidimensional term structure model is used to find statistical arbitrage opportunities in the interest rates derivatives market. The implied volatility of the model is calibrated by using a genetic algorithm optimization method. Two different options over the same underlying...

Even though a multi-factor linear asset pricing model can be equivalently represented in a Beta or in a stochastic discount factor (SDF) form, its inferential efficiency and pricing accuracy features may differ when estimated by the generalized method of moments (GMM), both in small and in large...

Leo Breiman (Breiman et al., 1984, 1998) was a statistician who was fond of practical applications, and this led him to develop several original studies. Based on the work begun by Friedman (1977), he developed a very accurate classification system, without the need for statistical assumptions,...