The focus of this paper is on finding a connection between the interest rate and equity asset classes. We propose an equity interest rate hybrid model which preserves market observable smiles: the equity from plain vanilla products via a local volatility framework and the interest rate from caps...

We model the joint dynamics of stock and interest rate by a hybrid SABR-Hull-White model, in which the asset price dynamics are modeled by the SABR model and the interest rate dynamics by the Hull-White short-rate model. We propose a projection formula, mapping the SABR-HW model parameters onto...

According to the theory proposed by Acerbi & Scandolo (2008), the value of a portfolio is defined in terms of public market data and idiosyncratic portfolio constraints imposed by an investor holding the portfolio. Depending on the constraints, one and the same portfolio could have different...

In this work, we investigate the challenging problem of estimating credit risk measures of portfolios with exposure concentration under the multi-factor Gaussian and multi-factor t-copula models. It is well-known that Monte Carlo (MC) methods are highly demanding from the computational point of...

An alternative generating mechanism for non-strict bivariate Archimedean copulas via the Lorenz curve of a positive random variable is proposed. Lorenz curves have been extensively studied in economics and statistics to characterize wealth inequality and tail risk. In this paper, these curves...

We propose a method for determining an arbitrage-free density implied by Hagan’s formula. Our technique is based on the stochastic collocation method. The principle is to determine a few collocation points on the implied survival distribution function (SDF) and project them on a polynomial of...