Search results for "Quantitative Finance - Pricing of Securities"
showing 4 items of 4 documents
Pricing sovereign contingent convertible debt
2018
We develop a pricing model for Sovereign Contingent Convertible bonds (S-CoCo) with payment standstills triggered by a sovereign's Credit Default Swap (CDS) spread. We model CDS spread regime switching, which is prevalent during crises, as a hidden Markov process, coupled with a mean-reverting stochastic process of spread levels under fixed regimes, in order to obtain S-CoCo prices through simulation. The paper uses the pricing model in a Longstaff-Schwartz American option pricing framework to compute future state contingent S-CoCo prices for risk management. Dual trigger pricing is also discussed using the idiosyncratic CDS spread for the sovereign debt together with a broad market index. …
Futures pricing in electricity markets based on stable CARMA spot models
2012
We present a new model for the electricity spot price dynamics, which is able to capture seasonality, low-frequency dynamics and the extreme spikes in the market. Instead of the usual purely deterministic trend we introduce a non-stationary independent increments process for the low-frequency dynamics, and model the large uctuations by a non-Gaussian stable CARMA process. The model allows for analytic futures prices, and we apply these to model and estimate the whole market consistently. Besides standard parameter estimation, an estimation procedure is suggested, where we t the non-stationary trend using futures data with long time until delivery, and a robust L 1 -lter to nd the states of …
A New Nonparametric Estimate of the Risk-Neutral Density with Applications to Variance Swaps
2021
We develop a new nonparametric approach for estimating the risk-neutral density of asset prices and reformulate its estimation into a double-constrained optimization problem. We evaluate our approach using the S\&P 500 market option prices from 1996 to 2015. A comprehensive cross-validation study shows that our approach outperforms the existing nonparametric quartic B-spline and cubic spline methods, as well as the parametric method based on the Normal Inverse Gaussian distribution. As an application, we use the proposed density estimator to price long-term variance swaps, and the model-implied prices match reasonably well with those of the variance future downloaded from the CBOE websi…
European Option Pricing with Transaction Costs and Stochastic Volatility: an Asymptotic Analysis
2015
In this paper the valuation problem of a European call option in presence of both stochastic volatility and transaction costs is considered. In the limit of small transaction costs and fast mean reversion, an asymptotic expression for the option price is obtained. While the dominant term in the expansion it is shown to be the classical Black and Scholes solution, the correction terms appear at $O(\varepsilon^{1/2})$ and $O(\varepsilon)$. The optimal hedging strategy is then explicitly obtained for the Scott's model.