Technical paper
On the cost of regulation under Solvency II
Technical papers
Information derivatives
Andrei Soklakov considers the problem of creating derivatives to provide tailored exposure to volatility risk. Information theory leads us to a whole class of such products. This class of 'information derivatives' includes the standard volatility…
Das Kontrahentenrisiko und CCDSs unter Korrelation
Der Neueste Stand - Hybrid-Risiko
Information derivatives
Andrei Soklakov considers the problem of creating derivatives to provide tailored exposure to volatility risk. Information theory leads us to a whole class of such products. This class of 'information derivatives' includes standard volatility products -…
A trick of the credit tail
Leveraged super-senior (LSS) trades represent a mechanism for packaging senior credit risk. Many LSS structures have been issued to date and yet there seems to be no formal pricing approach. In this article, Jon Gregory discusses the valuation of LSS…
Valuing Tips bond futures with the Jarrow-Yildirim model
Hongming Huang and Yildiray Yildirim apply the Jarrow-Yildirim model to derive a closed-form solution for Treasury inflation-protected securities (Tips) futures. With the issuance of inflation-protected bonds and the impact of inflation on financial…
A multi-state Vasicek model for correlated default rate and loss severity
Correlation between default and recovery has an important bearing on credit risk capital. Here, Rahul Sen shows that the effect can be modelled efficiently by allowing multiple loss states in the Vasicek framework. Heavy-tailed distributions result for…
A short cut to the rainbow
Per Horfelt designs an efficient and accurate method to price many popular multi-asset options such as options on the minimum and maximum of several assets and podiums. The method is based on a modification of the conditional independence model and is…
A bridge between mortgage TBA options and swaptions
Shijun Liu provides basis-point volatility option pricing formulas for swaptions and mortgage to-be-announced options that make direct comparison of volatilities easy and transparent across the two interest rate derivatives markets. Basis-point…
Realisable group diversification effects
Technical papers
Un approccio unificato
Capitale economico
Copule archimediane implicite nei dati di mercato
Approfondimenti. Derivati creditizi
Confidence intervals for corporate default rates
Rating agency default studies provide estimates of mean default rates over multiple time horizons but have never included estimates of the standard errors of the estimates. This is due, at least in part, to the challenge of accounting for the high degree…
Looking forward to back testing
With increasing challenges to measure value-at-risk and meet high regulatory requirements, the focus has turned to back testing as a way of assuring models' adequacy. Carsten S Wehn proposes a new regime of back testing, combining state-of-the-art…
A bridge between mortgage TBA options and swaptions
Interest Rates
Valuing CDOs of ABSs
Charles Smithson and Neil Pearson discuss the valuation of collateralised debt obligations (CDOs), with a close look at CDOs of subprime residential mortage-backed securities
Portfolio modelling of counterparty reinsurance default risk
Technical papers
Information derivatives
This paper considers the problem of creating derivatives to provide tailored exposure to volatility risk
Counterparty risk and CCDSs under correlation
Counterparty risk under correlation is relatively unexplored in the financial literature. Damiano Brigo and Andrea Pallavicini extend previous analysis beyond swap portfolios. A stochastic-intensity jump-diffusion model is adopted for the default event,…
Vix option pricing in a jump-diffusion model
Artur Sepp discusses Vix futures and options and shows that their market prices exhibit positive volatility skew. To better model the market behaviour of the S&P 500 index and its associated volatility skew, he introduces the stochastic dynamics of the…
Information derivatives
Andrei Soklakov considers the problem of creating derivatives to provide tailored exposure to volatility risk. Information theory leads us to a whole class of such products. This class of 'information derivatives' includes the standard volatility…