Managed synthetic CDOs permit the dynamic substitution of credits in the reference portfolio. The expectation of investors in is that a skilled manager should be able to identify deteriorating credits before they experience a credit event and should therefore be able to remove the credit from...

We solve a dynamic equilibrium model with generalized disappointment aversion preferences and continuous state endowment dynamics. We apply the framework to the term structure of interest rates and show that the model generates an upward sloping term structure of nominal interest rates, a...

We study optimal monetary policy, macro dynamics and their implications on the term structure of interest rates in a continuous-time New-Keynesian model. With a quadratic cost function and regime-dependent monetary discount rates, the time-consistent optimal monetary policy is regime-dependent...

We propose a new entropy-based correlation measure (coentropy) to evaluate the performance of international asset pricing models. Coentropy captures the codependence of two random variables beyond normality. We document that the coentropy of international stochastic discount factors (SDFs) can...

The phenomenon of the frequency basis (i.e. a spread applied to one leg of a swap to exchange one floating interest rate for another of a di fferent tenor in the same currency) contradicts textbook no-arbitrage conditions and has become an important feature of interest rate markets since the...

The LIBOR Market Model (LMM or BGM) has become one of the most popular models for pricing interest rate products. It is commonly believed that Monte-Carlo simulation is the only viable method available for the LIBOR Market Model. In this article, however, we propose a lattice (or tree) approach...

In this article, we present the analytical approximation of zero-coupon bonds and swaption prices for general short rate models. The approximation is based on regular and singular expansions with respect to the small volatility and contains a low-dimensional integration. The model in hand...

We introduce two new methods to calculate bounds for zero-sum game options using Monte Carlo simulation. These extend and generalise the duality results of Haugh-Kogan/Rogers and Jamshidian to the case where both parties of a contract have Bermudan optionality. It is shown that the...

This paper discusses the parallel and efficient computation of macroeconomic models, with emphasis on solving sovereign default models. Our motivation is twofold. First, we aim to streamline complex numerical models in a parallel computa- tion fashion. Second, we want to unleash the power of GPU...

We develop a technique of parameter averaging and Markovian projection on a quadratic volatility model based on a term-by-term matching of the asymptotic expansions of option prices in volatilities. In doing so, we revisit the procedure of asymptotic expansion and show that the use of the...