Showing 1 - 10 of 1,535
We tweak the conventional Merton model to account for the asymmetric properties of assets returns and investors asymmetric behavior toward the upside potential of gain versus the downside risk of loss. Using an asymmetric split normal distribution, we capture empirical asymmetries in the...
Persistent link: https://www.econbiz.de/10012990657
Using a stochastic discount factor approach, we derive the exact solution for arbitrage-free bond yields for the case that the short-term interest rate follows a threshold process with the intercept switching endogenously. The yield functions, mapping the one-month rate into n-period yields,...
Persistent link: https://www.econbiz.de/10010295794
We solve a dynamic general 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,...
Persistent link: https://www.econbiz.de/10013005999
Multi-factor interest-rate models are widely used. Contingent claims with early-exercise features are often valued by resorting to trees, finite-difference schemes and Monte Carlo simulations. When jumps are present, however, these methods are less effective. In this work we develop an algorithm...
Persistent link: https://www.econbiz.de/10013039096
I study the relationship between interest rates and interest-rate volatility, particularly the idea of unspanned stochastic volatility (USV): volatility risk that cannot be hedged with bonds or swaps. Simulated data is used to assess the ability of regression-based techniques, popular but...
Persistent link: https://www.econbiz.de/10012903769
This paper proposes an integrated pricing framework for convertible bonds, which comprises firm value evolving as an exponential jump diffusion, correlated stochastic interest rates movements and an efficient numerical pricing scheme. By construction, the proposed stochastic model fits in the...
Persistent link: https://www.econbiz.de/10012906221
A callable leveraged constant maturity swap (CMS) spread note allows the holder to benefit from future changes in the spread between two swap interest rates. The issues retains the right to call the note at pre-specified times in the future. The note is priced via Monte Carlo simulation using...
Persistent link: https://www.econbiz.de/10013098211
Practical techniques for approximating yield given the price and price given the yield are described. Duration and convexity estimations given prices and yields at three observation points are presented. Such approximations are useful when computing prices and yields from their values at nearby...
Persistent link: https://www.econbiz.de/10013098243
We propose a general framework for efficient pricing via a Partial Differential Equation (PDE) approach of cross-currency interest rate derivatives under the Hull-White model. In particular, we focus on pricing long-dated foreign exchange (FX) interest rate hybrids, namely Power Reverse Dual...
Persistent link: https://www.econbiz.de/10013150362
We present a Graphics Processing Unit (GPU) parallelization of the computation of the price of cross-currency interest rate derivatives via a Partial Differential Equation (PDE) approach. In particular, we focus on the GPU-based parallel computation of the price of long-dated foreign exchange...
Persistent link: https://www.econbiz.de/10013150451