Introduces long-term swap rate and analyzes its relationship with long-term interest rates.
problem Understanding the relationship between long-term swap rate and long-term interest rates.
method Introduces long-term swap rate and analyzes its relationship with long-term interest rates using two term structure methodologies.
result Existence of long-term rates in Flesaker-Hughston model and linear-rational model.
The paper introduces a new stochastic volatility model with long-term memory and jumps.
problem Developing a model for variance and volatility swaps with long-term memory and jumps.
method Fractional Barndorff-Nielsen and Shephard model incorporating long-term memory and jumps.
result Arbitrage-free prices for variance and volatility swaps derived for the new model.
We derive an arbitrage free relationship between recovery swap rates, digital default swap spreads and conventional CDS spreads, and argue that the fair forward recovery rate used in recovery swaps must contain a convexity premium over the expected recovery value.
Paper examines pricing and hedging for cross-currency swaps referencing backward-looking rates.
problem Pricing and hedging cross-currency swaps with backward-looking rates.
method Uses interest rate and currency futures for hedging, analyzes arbitrage-free multi-curve setting.
result Explicit pricing and hedging results for CCBS with backward-looking rates.
This study models credit default swap premiums with a stochastic recovery rate.
problem Analyzing credit default swap premiums with varying recovery rates.
method Develops a model using stochastic recovery rates.
result Models credit default swap premiums effectively with a stochastic recovery rate.
The paper develops a new hybrid model for pricing variance swaps.
problem Pricing variance swaps in a model with stochastic volatility and interest rate.
method Hybrid model combining Heston's stochastic volatility and CIR stochastic interest rate with regime-switching.
result A semi-closed form pricing formula for variance swaps is derived.
Study examines factors influencing tail risk premia for long-term equity investors.
problem Determining factors affecting variance and higher-moment risk premia in equity markets.
method Empirical study using discretisation invariant swaps for log returns, focusing on skewness, kurtosis, and variance risk premia.
result Momentum is the dominant driver for skewness and kurtosis risk premia, while variance risk premium is influenced by size and growth.
This paper develops a semi-closed form formula for pricing variance swaps with stochastic volatility and interest rate correlation.
problem Pricing variance swaps with stochastic volatility and interest rate correlation under full correlation structure.
method Developed an efficient semi-closed form pricing formula for variance swaps using characteristic functions.
result The correlation between the underlying and interest rate significantly impacts the pricing of variance swaps.
Derives measure changes for pricing midcurve swaptions.
problem Pricing midcurve swaptions in a forward swap annuity measure.
method Derives measure change formulae and constructs linear and exponential terminal swap rate models.
result Captures midcurve swaption correlation skew.
The paper prices variance swaps in incomplete markets with stochastic interest rate and volatility.
problem Pricing variance swaps in markets with stochastic interest rates and volatility.
method Equilibrium framework and joint moment generating function.
result Closed-form solution for fair delivery price of variance swaps.
The paper introduces a method to accurately price swaps and their Value at Risk (VaR) using dynamic trading and regression/simulation.
problem Theoretical and practical concerns about uncollateralized swaps and their risk not being fully hedged.
method Dynamic trading of CCP swaps, applying discount rates based on counterparty's or own bond curves, and using Longstaff-Schwartz regression and finite difference schemes.
result The uncollateralized swap can be fully replicated, and FVA is redefined as a liquidity or funding basis component of total valuation adjustment.
Italian banks use swaps to hedge against rising interest rates, offsetting losses on debt securities.
problem Interest rate risk on Italian banks' debt securities.
method Analysis of granular regulatory data on euro interest rate swap trades.
result Swaps can offset losses on debt securities, reducing interest rate exposure.
DECS tool assesses swap rates of DEXes and Fusion outperforms competitors.
problem Lack of unbiased swap rate comparisons in decentralized finance.
method Swap transaction monitoring and simulation techniques.
result 1inch Classic and Fusion consistently outperform competitors in swap rates.
Paper finds funding rates on BitMEX predict Bitcoin inverse swap contracts.
problem Understanding the relationship between BitMEX funding rates and Bitcoin derivatives.
method Examined Heteroskedasticity of funding rates, established Granger causality, developed GARCH models for prediction.
result Funding rates on BitMEX predict Bitcoin inverse swap contracts.
A new model prices Bermudan swaptions without calibration.
problem Calibration of Bermudan swaptions models.
method Semi-analytical pricing model using swap rates and correlations.
result No product-specific calibration required.
Empirical study finds variance swap rate is affine in spot variance for S&P500 data.
problem Investigating the relationship between variance swap rate and spot variance.
method Empirical analysis using S&P500 data from 2006-2018, testing different models.
result Affine relationship between variance swap rate and spot variance is supported.
This study updates a model for Mexican interest rate swaps post-crisis.
problem Post-crisis divergence of interest rates and new regulatory requirements.
method Used Fujii et al. 2010b model with collateral currencies USD, EUR, MXN.
result Validated model for Mexican interest rate derivatives with collateral currencies.
New method estimates risk-neutral density for asset prices, improving on existing techniques.
problem Estimating risk-neutral density for asset prices accurately.
method Developed a nonparametric approach reformulated as a double-constrained optimization problem.
result Our approach outperforms existing methods in estimating risk-neutral density.
Examines SOFR derivatives pricing and hedging post-LIBOR discontinuation.
problem Pricing and hedging of SOFR derivatives post-LIBOR discontinuation.
method One-factor model based on Vasicek's equation for overnight interest rates dynamics.
result Arbitrage-free pricing and hedging of SOFR derivatives instruments.
We introduce trading fees into AMM models and analyze their impact on swap rates and profits.
problem The impact of trading fees on AMM models and users' trading strategies.
method We extend a foundational AMM model by introducing a trading fee parameter and analyze the model using economic and mathematical rigor.
result Trading fees affect the additivity of swap rates and can lead to greater profits from larger trades.
Interest rate market models, like the LIBOR market model, have the advantage that the basic model quantities are directly observable in financial markets. Inflation market models extend this approach to inflation markets, where zero-coupon and year-on-year inflation-indexed swaps are the basic observable products. For …
Study on collateral currency impact in differential swaps valuation.
problem Impact of collateral currency on differential swap valuation and risk management.
method Replication using futures, explicit pricing and hedging strategies.
result Choice of collateral currency can introduce additional risk exposures.
The article introduces a new interest rate model using Bergomi stochastic volatility.
problem Developing a model for interest rate swaps and swaptions without requiring calibration.
method Forward variance modeling by L. Bergomi applied to co-terminal swap market model.
result The model provides simple PnL formulas and high flexibility in controlling model dynamics.
Improved bounds for multicalibration and omniprediction in online and distributional settings.
problem Achieving efficient multicalibration and omniprediction in fairness and loss minimization.
method Proposed an efficient algorithm achieving improved rates for multicalibration and omniprediction.
result Achieved O(T31) ℓ2-swap multicalibration error for convex Lipschitz functions. Study finds discrepancies in open interest reporting for Bitcoin perpetual swaps.
problem Misquoted open interest in perpetual swaps leads to liquidity and solvency concerns.
method Analyzed tick-by-tick data from seven exchanges to identify discrepancies.
result Open interest reported by exchanges varies widely, some implausible.
Analyzes American swaption pricing in LR model, solving optimal stopping problem.
problem Analyzes American swaption pricing in LR model.
method Analyzes American swaption pricing in LR model, solving optimal stopping problem.
result Characterizes optimal stopping boundary and obtains arbitrage-free price.
We study the fair strike of a discrete variance swap for a general time-homogeneous stochastic volatility model. In the special cases of Heston, Hull-White and Schobel-Zhu stochastic volatility models we give simple explicit expressions (improving Broadie and Jain (2008a) in the case of the Heston model). We give condi…
Derives formulae linking SABR model parameters to ATM and option prices.
problem Characterizing SABR model parameters from option prices.
method Analytic formulae linking α, ν, and ρ to ATM price and option prices at strikes. result Characterization of SABR parameters from swap rate probability density function derivatives.
DGNN predicts financial margin calls under stress tests.
problem Forecasting margin calls in dynamic financial networks.
method Dynamic Graph Neural Network (DGNN) architecture.
result DGNN produces accurate forecasts up to 21 days.
We derive a general multivariate theory for realised characteristics of `model-free discretisation-invariant swaps', so-called because the standard no-arbitrage assumption of martingale forward prices is sufficient to derive fair-value swap rates for such characteristics which have no jump or discretisation errors. Thi…
DDLK uses deep learning to find important features in models.
problem Discovering important features in black box models like deep neural networks.
method DDLK directly minimizes KL divergence to generate knockoffs that obey the swap property.
result DDLK outperforms baselines in discovering important features while controlling false discovery rate.
Bit-Swap improves lossless compression for hierarchical latent variable models.
problem Efficient lossless compression for latent variable models with hierarchical structure.
method Generalizes bits-back coding to hierarchical latent variable models with Markov chain structure.
result Achieves superior lossless compression rates for hierarchical latent variable models.
Constructs rational models for pricing and managing inflation-linked derivatives.
problem Pricing and risk management of inflation-linked derivatives.
method Rational models constructed in a multiplicative manner, isolating inflation convexity-adjustment.
result Closed-form pricing of various inflation products and exotic swaps.
This study examines the interaction between CDS and stock indices, revealing significant short and long-term impacts.
problem Understanding the interaction between Credit Default Swaps (CDS) and national stock indices.
method ARDL technique applied to analyze short and long-run interactions between BIST-100 index and CDS prices over a specific period.
result The study finds that changes in CDS and BIST-100 index prices have significant impacts on each other, with long-term effects being more pronounced.
The paper calculates fair strike for variance swaps on time-changed Markov processes.
problem Calculating fair strike for variance swaps on time-changed Markov processes.
method Proving the fair strike equals the price of a European contract and solving the integro-differential equation.
result The fair strike for variance swaps can be computed explicitly for certain Markov processes.
In this work we derive an approximated no-arbitrage market valuation formula for Constant Maturity Credit Default Swaps (CMCDS). We move from the CDS options market model in Brigo (2004), and derive a formula for CMCDS that is the analogous of the formula for constant maturity swaps in the default free swap market unde…
We show how to restructure the counterparty risk faced by the originator of a securitization or covered bond arising from an interest rate hedging swap assisted by a "one-way" collateral agreement. This risk emerges when the swap is negotiated between the special purpose vehicle and a third party that covers itself thr…
Analyzes long-term growth rate of leveraged ETFs using martingale extraction.
problem Determines long-term growth rate of leveraged ETFs under various models.
method Develops analytical approach using martingale extraction and eigenpair of infinitesimal generator.
result Derives explicit long-term growth rates for different reference asset models.
The paper explains the concave shape of yield curves from trading perspectives.
problem Lack of explanation for the concavity of yield curves from economics theory.
method Explains the concavity of yield curves from trading perspectives.
result Offers an explanation for the concave shape of yield curves.
Enhances swaption modeling with rough stochastic volatility.
problem Modeling swaption volatility in post-LIBOR markets.
method Introduces rough stochastic volatility into FMM and rigorously justifies the freezing approximation.
result Establishes a new framework connecting FMM to rough Bergomi for forward swap rates.
This paper analyzes the robust growth rate of leveraged ETFs under uncertain parameters.
problem Analyzing the robust long-term growth rate of leveraged ETFs with uncertain parameters.
method Derive worst-case parameters using comparison principle and martingale extraction method.
result Explicitly obtain robust long-term growth rates under various models.
New EPS insurance offers partial protection against superannuation losses.
problem Lack of efficient investment insurance for superannuation holders.
method Developed a new financial derivative, equity protection swap (EPS), and derived a fair pricing formula.
result EPS can be an efficient investment insurance tool for superannuation accounts.
In the forthcoming ISDA Standard Credit Support Annex (SCSA), the trades denominated in non-G5 currencies as well as those include multiple currencies are expected to be allocated to the USD silo, where the contracts are collateralized by USD cash, or a different currency with an appropriate interest rate overlay to ac…
The Wiener-Hopf factorization is obtained in closed form for a phase type approximation to the CGMY Lévy process. This allows, for the approximation, exact computation of first passage times to barrier levels via Laplace transform inversion. Calibration of the CGMY model to market option prices defines the risk neutral…
The Dybvig-Ingersoll-Ross (DIR) theorem states that, in arbitrage-free term structure models, long-term yields and forward rates can never fall. We present a refined version of the DIR theorem, where we identify the reciprocal of the maturity date as the maximal order that long-term rates at earlier dates can dominate …
Marxism's rate of profit thesis rejected as illogical.
problem Marxism's rate of profit thesis is challenged as illogical.
method Rejects Marx's thesis on the long-term tendency of the rate of profit to fall.
result Marxism's rate of profit thesis is rejected as illogical.
The study models mortgage prepayment risk, accounting for behavioral uncertainty, and provides replication strategies.
problem Modeling and replicating the prepayment option of mortgages with behavioral uncertainty.
method Modeling behavioral uncertainty as a non-hedgeable risk factor, proving its impact on exposure value, and using IRSs and swaptions for replication.
result Including behavioral uncertainty reduces the exposure's value, and swaptions are necessary for optimal replication.
In this paper we propose a simple and efficient method to compute the ordered default time distributions in both the homogeneous case and the two-group heterogeneous case under the interacting intensity default contagion model. We give the analytical expressions for the ordered default time distributions with recursive…