A locally-built, LLM-digested index of recent arXiv papers in quant finance, geometry/topology, and statistical ML — keyword search served straight from SQLite on this machine.
Quantum computing speeds up interest rate derivative pricing using LMM.
We investigate LIBOR-based derivatives using a parsimonious field theory interest rate model capable of instilling imperfect correlation between different maturities. Delta and Gamma hedge parameters are derived for LIBOR Caps against fluctuations in underlying forward rates. An empirical illustration of our methodolog…
Develops a framework for consistent pricing of interest rate derivatives.
Unified model for financial derivatives pricing with stochastic interest rates.
Derives PDEs for pricing RFR derivatives under a new FMM model.
At present, there is an explosion of practical interest in the pricing of interest rate (IR) derivatives. Textbook pricing methods do not take into account the leptokurticity of the underlying IR process. In this paper, such a leptokurtic behaviour is illustrated using LIBOR data, and a possible martingale pricing sche…
Study models interest rates as CTMC, pricing and replicating derivatives.
Paper provides an explicit formula for local volatility in Cheyette models.
Derives equations for life insurance reserves with interest rate uncertainty.
This paper models short rates with jumps using PDEs.
Examines SOFR derivatives pricing and hedging post-LIBOR discontinuation.
We derive explicit valuation formulae for an exotic path-dependent interest rate derivative, namely an option on the composition of LIBOR rates. The formulae are based on Fourier transform methods for option pricing. We consider two models for the evolution of interest rates: an HJM-type forward rate model and a LIBOR-…
We revisit the problem of pricing and hedging plain vanilla single-currency interest rate derivatives using multiple distinct yield curves for market coherent estimation of discount factors and forward rates with different underlying rate tenors. Within such double-curve-single-currency framework, adopted by the market…
Defines a new short rate model and convexity adjustment formulae.
This article is an extension of the work of one of us (Coopersmith, 2011) in deriving the relationship between certain interest rates and the inflation rate of a two component economic system. We use the well-known Fisher relation between the difference of the nominal interest rate and its inflation adjusted value to e…
The potential approach is a general and simple method for modelling interest rates, foreign exchange rates, and in principle other types of financial assets. This paper takes data on some liquid interest rate derivatives, and fits potential models using a small finite-state Markov chain as the base Markov process.
A semi-static approach efficiently replicates and prices callable interest rate derivatives.
This paper uses crypto derivatives data to estimate yield curves for cryptocurrencies.
In 'A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options', Heston proposes a Stochastic Volatility (SV) model with constant interest rate and derives a semi-explicit valuation formula. Heston also describes, in general terms, how the model could be extended to inc…
We propose a model for the joint evolution of European inflation, the European Central Bank official interest rate and the short-term interest rate, in a stochastic, continuous time setting. We derive the valuation equation for a contingent claim depending potentially on all three factors. This valuation equation reduc…
We propose a modification of the classical Black-Derman-Toy (BDT) interest rate tree model, which includes the possibility of a jump with small probability at each step to a practically zero interest rate. The corresponding BDT algorithms are consequently modified to calibrate the tree containing the zero interest rate…
We present a new approach for the pricing of interest rate derivatives which allows a direct computation of option premiums without deriving a (Black-Scholes type) partial differential equation and without explicitly solving the stochastic process for the underlying variable. The approach is tested by rederiving the pr…
Study proposes optimal risk-aware interest rates for crypto lending protocols.
The paper analyzes insurance risks using stochastic models.
A term structure model in which the short rate is zero is developed as a candidate for a theory of cryptocurrency interest rates. The price processes of crypto discount bonds are worked out, along with expressions for the instantaneous forward rates and the prices of interest-rate derivatives. The model admits function…
We propose a formulation of the term structure of interest rates in which the forward curve is seen as the deformation of a string. We derive the general condition that the partial differential equations governing the motion of such string must obey in order to account for the condition of absence of arbitrage opportun…
We extend Dupire's formula for stochastic interest rates and local volatility.
Italian banks use swaps to hedge against rising interest rates, offsetting losses on debt securities.
The paper addresses pricing interest rate derivatives in markets with volatility uncertainty.
This paper improves SABR/LMM for better practical use in global banks.
The financial crisis of 2007/08 caused catastrophic consequences and brought a bunch of changes around the world. Interest rates that were known to follow or behave similarly of each other diverged. Furthermore, the regulation and in particular the counterparty credit risk began to to be considered and quantified. Cons…
This research improves DeFi interest rates using a PID control system.
Study compares ZBDT model to BDT for financial derivatives valuation.
New asymptotic formula for option prices with interest rates and dividend yield effects.
We analyze analytic approximation formulae for pricing zero-coupon bonds in the case when the short-term interest rate is driven by a one-factor mean-reverting process with a volatility nonlinearly depending on the interest rate itself. We derive the order of accuracy of the analytical approximation due to Choi and Wir…
Study on interest rate model with jumps, proving strong convergence in simulations.
The paper uses a Hamiltonian method to price barrier options under Vasicek interest rate model.
New model improves European inflation and interest rate predictions.
Improved path integral method for financial derivatives pricing.
The paper develops a new formula for financial pricing under multiple interest rates and collateralization.
We propose a new model for pricing Quanto CDS and risky bonds. The model operates with four stochastic factors, namely: hazard rate, foreign exchange rate, domestic interest rate, and foreign interest rate, and also allows for jumps-at-default in the FX and foreign interest rates. Corresponding systems of PDEs are deri…
Develops a bi-variate stochastic framework to model mortality and interest rates with long-range dependence.
In this paper we are interested in term structure models for pricing zero coupon bonds under rapidly oscillating stochastic volatility. We analyze solutions to the generalized Cox-Ingersoll-Ross two factors model describing clustering of interest rate volatilities. The main goal is to derive an asymptotic expansion of …
Study pricing of American put options with stochastic interest rate and finite maturity.
Study affine models for alternative risk-free rates and derive caplet pricing formulas.
Develops European power option pricing under correlated interest rate and asset processes.
In this paper, we consider the problem of pricing discretely-sampled variance swaps based on a hybrid model of stochastic volatility and stochastic interest rate with regime-switching. Our modelling framework extends the Heston stochastic volatility model by including the CIR stochastic interest rate and model paramete…
Proposes new Monte Carlo methods for calibrating local volatility models with stochastic components.