Under the assumption that the dynamic assets price follows the variance gamma process, we establish a new bilateral pricing model of interest rate swap by integrating the reduced form model for swap pricing and the st...Under the assumption that the dynamic assets price follows the variance gamma process, we establish a new bilateral pricing model of interest rate swap by integrating the reduced form model for swap pricing and the structural model for default risk measurement.Our pricing model preserves the simplicity of the reduced form model and also considers the dynamic evolution of the counterparty assets price by incorporating with the structural model for default risk measurement. We divide the swap pricing framework into two parts, simplifying the pricing model relatively. Simulation results show that, for a one year interest rate swap, a bond spread of one hundred basis points implies a swap credit spread about 0.1054 basis point.展开更多
By considering the failure of normal distribution and continuous assumption in financial modeling, this paper attempts to apply the Exponential Variance Gamma （EVG） model into the pricing framework of permanent conv...By considering the failure of normal distribution and continuous assumption in financial modeling, this paper attempts to apply the Exponential Variance Gamma （EVG） model into the pricing framework of permanent convertible bonds with call clause. Following framework of Gapeev ＆ Kiihn（2005）, we obtain an explicit solution to the bond price and optimal stopping strategies, which shows that the new pricing framework is quite different from the continuous model and even the Jump Diffusion model. Compared with the numerical calculation, the closed form results price convertible bonds quickly and accurately.展开更多
Risks embedded in asset price dynamics are taken to be accumulations of surprise jumps.A Markov pure jump model is formulated on making variance gamma parameters deterministic functions of the price level.Estimation i...Risks embedded in asset price dynamics are taken to be accumulations of surprise jumps.A Markov pure jump model is formulated on making variance gamma parameters deterministic functions of the price level.Estimation is done by matrix exponentiation of the transition rate matrix for a continuous time finite state Markov chain approximation.The motion is decomposed into a space dependent drift and a space dependent martingale component.Though there is some local mean reversion in the drift,space dependence of the martingale component renders the dynamics to be of the momentum type.Local risk is measured using market calibrated measure distortions that introduce risk charges into the lower and upper prices of two price economies.These risks are compensated by the exponential variation of space dependent arrival rates.Estimations are conducted for the S&P 500 index(SPX),the exchange traded fund for the financial sector(XLF),J.P.Morgan stock prices(JPM),the ratio of JPM to XLF,and the ratio of XLF to SPX.展开更多
文摘Under the assumption that the dynamic assets price follows the variance gamma process, we establish a new bilateral pricing model of interest rate swap by integrating the reduced form model for swap pricing and the structural model for default risk measurement.Our pricing model preserves the simplicity of the reduced form model and also considers the dynamic evolution of the counterparty assets price by incorporating with the structural model for default risk measurement. We divide the swap pricing framework into two parts, simplifying the pricing model relatively. Simulation results show that, for a one year interest rate swap, a bond spread of one hundred basis points implies a swap credit spread about 0.1054 basis point.
基金Supported by the Key Grant Project of Chinese Ministry of Education (309018)National Natural Science Foundation of China (70973140, 11171304)Zhejiang Provincial Natural Science Foundation of China(Y6110023)
文摘By considering the failure of normal distribution and continuous assumption in financial modeling, this paper attempts to apply the Exponential Variance Gamma （EVG） model into the pricing framework of permanent convertible bonds with call clause. Following framework of Gapeev ＆ Kiihn（2005）, we obtain an explicit solution to the bond price and optimal stopping strategies, which shows that the new pricing framework is quite different from the continuous model and even the Jump Diffusion model. Compared with the numerical calculation, the closed form results price convertible bonds quickly and accurately.
文摘Risks embedded in asset price dynamics are taken to be accumulations of surprise jumps.A Markov pure jump model is formulated on making variance gamma parameters deterministic functions of the price level.Estimation is done by matrix exponentiation of the transition rate matrix for a continuous time finite state Markov chain approximation.The motion is decomposed into a space dependent drift and a space dependent martingale component.Though there is some local mean reversion in the drift,space dependence of the martingale component renders the dynamics to be of the momentum type.Local risk is measured using market calibrated measure distortions that introduce risk charges into the lower and upper prices of two price economies.These risks are compensated by the exponential variation of space dependent arrival rates.Estimations are conducted for the S&P 500 index(SPX),the exchange traded fund for the financial sector(XLF),J.P.Morgan stock prices(JPM),the ratio of JPM to XLF,and the ratio of XLF to SPX.
