The Experts below are selected from a list of 365379 Experts worldwide ranked by ideXlab platform
Eric Ghysels - One of the best experts on this subject based on the ideXlab platform.
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a study towards a unified approach to the joint estimation of objective and risk neutral Measures for the purpose of options valuation
Journal of Financial Economics, 2000Co-Authors: Mikhail Chernov, Eric GhyselsAbstract:The purpose of this paper is to bridge two strands of the literature, one pertaining to the objective or physical Measure used to model an underlying asset and the other pertaining to the Risk-Neutral Measure used to price derivatives. We propose a generic procedure using simultaneously the fundamental price and a set of option contracts. We use Heston's (1993, Review of Financial Studies 6, 327--343) model as an example, and appraise univariate and multivariate estimation of the model in terms of pricing and hedging performance. Our results, based on the SP Efficient method of moments; State price densities; Stochastic volatility models; Filtering
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a study towards a unified approach to the joint estimation of objective and risk neutral Measures for the purpose of options valuation
Journal of Financial Economics, 2000Co-Authors: Mikhail Chernov, Eric GhyselsAbstract:The purpose of this paper is to bridge two strands of the literature, one pertaining to the objective or physical Measure used to model an underlying asset and the other pertaining to the Risk-Neutral Measure used to price derivatives. We propose a generic procedure using simultaneously the fundamental price, St, and a set of option contracts [(σitI)i=1,m] where m⩾1 and σitI is the Black–Scholes implied volatility. We use Heston's (1993. Review of Financial Studies 6, 327–343) model as an example, and appraise univariate and multivariate estimation of the model in terms of pricing and hedging performance. Our results, based on the S&P 500 index contract, show dominance of univariate approach, which relies solely on options data. A by-product of this finding is that we uncover a remarkably simple volatility extraction filter based on a polynomial lag structure of implied volatilities. The bivariate approach, involving both the fundamental security and an option contract, appears useful when the information from the cash market reflected in the conditional kurtosis provides support to price long term.
Mikhail Chernov - One of the best experts on this subject based on the ideXlab platform.
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a study towards a unified approach to the joint estimation of objective and risk neutral Measures for the purpose of options valuation
Journal of Financial Economics, 2000Co-Authors: Mikhail Chernov, Eric GhyselsAbstract:The purpose of this paper is to bridge two strands of the literature, one pertaining to the objective or physical Measure used to model an underlying asset and the other pertaining to the Risk-Neutral Measure used to price derivatives. We propose a generic procedure using simultaneously the fundamental price and a set of option contracts. We use Heston's (1993, Review of Financial Studies 6, 327--343) model as an example, and appraise univariate and multivariate estimation of the model in terms of pricing and hedging performance. Our results, based on the SP Efficient method of moments; State price densities; Stochastic volatility models; Filtering
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a study towards a unified approach to the joint estimation of objective and risk neutral Measures for the purpose of options valuation
Journal of Financial Economics, 2000Co-Authors: Mikhail Chernov, Eric GhyselsAbstract:The purpose of this paper is to bridge two strands of the literature, one pertaining to the objective or physical Measure used to model an underlying asset and the other pertaining to the Risk-Neutral Measure used to price derivatives. We propose a generic procedure using simultaneously the fundamental price, St, and a set of option contracts [(σitI)i=1,m] where m⩾1 and σitI is the Black–Scholes implied volatility. We use Heston's (1993. Review of Financial Studies 6, 327–343) model as an example, and appraise univariate and multivariate estimation of the model in terms of pricing and hedging performance. Our results, based on the S&P 500 index contract, show dominance of univariate approach, which relies solely on options data. A by-product of this finding is that we uncover a remarkably simple volatility extraction filter based on a polynomial lag structure of implied volatilities. The bivariate approach, involving both the fundamental security and an option contract, appears useful when the information from the cash market reflected in the conditional kurtosis provides support to price long term.
Wolfgang J Runggaldier - One of the best experts on this subject based on the ideXlab platform.
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the volatility of the instantaneous spot interest rate implied by arbitrage pricing a dynamic bayesian approach
Automatica, 2006Co-Authors: Ramaprasad Bhar, Carl Chiarella, Hing Hung, Wolfgang J RunggaldierAbstract:This paper considers the estimation of the volatility of the instantaneous short interest rate from a new perspective. Rather than using discretely compounded market rates as a proxy for the instantaneous short rate of interest, we derive a relationship between observed LIBOR rates and certain unobserved instantaneous forward rates. We determine the stochastic dynamics for these rates under the Risk-Neutral Measure and propose a filtering estimation algorithm for a time-discretised version of the resulting interest rate dynamics based on dynamic Bayesian updating in order to estimate the volatility function. Our time discretisation can be justified by the fact that data are observed discretely in time. The method is applied to US Treasury rates of various maturities to compute a (posterior) distribution for the parameters of the volatility specification.
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the volatility of the instantaneous spot interest rate implied by arbitrage pricing a dynamic bayesian approach
The Finance, 2004Co-Authors: Ramaprasad Bhar, Carl Chiarella, Hing Hung, Wolfgang J RunggaldierAbstract:This paper considers the estimation of the volatility of the instantaneous short interest rate from a new perspective. Rather than using discretely compounded market rates as a proxy for the instantaneous short rate of interest, we derive a relationship between observed LIBOR rates and certain unobserved instantaneous forward rates. We determine the stochastic dynamics for these rates under the risk- neutral Measure and propose a filtering estimation algorithm for a time- discretised version of the resulting interest rate dynamics based on dynamic Bayesian updating. The method is applied to US Treasury rates of various maturities and is found to give a reasonable model fit.
Carl Chiarella - One of the best experts on this subject based on the ideXlab platform.
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the partial differential equation approach under geometric brownian motion
2015Co-Authors: Carl Chiarella, Xuezhong He, Christina Sklibosios NikitopoulosAbstract:The Partial Differential Equation (PDE) Approach is one of the techniques in solving the pricing equations for financial instruments. The solution technique of the PDE approach is the Fourier transform, which reduces the problem of solving the PDE to one of solving an ordinary differential equation (ODE). The Fourier transform provides quite a general framework for solving the PDEs of financial instruments when the underlying asset follows a jump-diffusion process and also when we deal with American options. This chapter illustrates that in the case of geometric Brownian motion, the ODE determining the transform can be solved explicitly. It shows how the PDE approach is related to pricing derivatives in terms of integration and expectations under the Risk-Neutral Measure.
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the volatility of the instantaneous spot interest rate implied by arbitrage pricing a dynamic bayesian approach
Automatica, 2006Co-Authors: Ramaprasad Bhar, Carl Chiarella, Hing Hung, Wolfgang J RunggaldierAbstract:This paper considers the estimation of the volatility of the instantaneous short interest rate from a new perspective. Rather than using discretely compounded market rates as a proxy for the instantaneous short rate of interest, we derive a relationship between observed LIBOR rates and certain unobserved instantaneous forward rates. We determine the stochastic dynamics for these rates under the Risk-Neutral Measure and propose a filtering estimation algorithm for a time-discretised version of the resulting interest rate dynamics based on dynamic Bayesian updating in order to estimate the volatility function. Our time discretisation can be justified by the fact that data are observed discretely in time. The method is applied to US Treasury rates of various maturities to compute a (posterior) distribution for the parameters of the volatility specification.
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the volatility of the instantaneous spot interest rate implied by arbitrage pricing a dynamic bayesian approach
The Finance, 2004Co-Authors: Ramaprasad Bhar, Carl Chiarella, Hing Hung, Wolfgang J RunggaldierAbstract:This paper considers the estimation of the volatility of the instantaneous short interest rate from a new perspective. Rather than using discretely compounded market rates as a proxy for the instantaneous short rate of interest, we derive a relationship between observed LIBOR rates and certain unobserved instantaneous forward rates. We determine the stochastic dynamics for these rates under the risk- neutral Measure and propose a filtering estimation algorithm for a time- discretised version of the resulting interest rate dynamics based on dynamic Bayesian updating. The method is applied to US Treasury rates of various maturities and is found to give a reasonable model fit.
David Skovmand - One of the best experts on this subject based on the ideXlab platform.
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rational multi curve models with counterparty risk valuation adjustments
Quantitative Finance, 2016Co-Authors: Stephane Crepey, Andrea Macrina, Tuyet Mai Nguyen, David SkovmandAbstract:We develop a multi-curve term structure set-up in which the modelling ingredients are expressed by rational functionals of Markov processes. We calibrate to London Interbank Offer Rate swaptions data and show that a rational two-factor log-normal multi-curve model is sufficient to match market data with accuracy. We elucidate the relationship between the models developed and calibrated under a Risk-Neutral Measure and their consistent equivalence class under the real-world probability Measure . The consistent -pricing models are applied to compute the risk exposures which may be required to comply with regulatory obligations. In order to compute counterparty-risk valuation adjustments, such as credit valuation adjustment, we show how default intensity processes with rational form can be derived. We flesh out our study by applying the results to a basis swap contract.
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rational multi curve models with counterparty risk valuation adjustments
Research Papers in Economics, 2015Co-Authors: Stephane Crepey, Andrea Macrina, Tuyet Mai Nguyen, David SkovmandAbstract:We develop a multi-curve term structure setup in which the modelling ingredients are expressed by rational functionals of Markov processes. We calibrate to LIBOR swaptions data and show that a rational two-factor lognormal multi-curve model is sufficient to match market data with accuracy. We elucidate the relationship between the models developed and calibrated under a Risk-Neutral Measure Q and their consistent equivalence class under the real-world probability Measure P. The consistent P-pricing models are applied to compute the risk exposures which may be required to comply with regulatory obligations. In order to compute counterparty-risk valuation adjustments, such as CVA, we show how positive default intensity processes with rational form can be derived. We flesh out our study by applying the results to a basis swap contract.
