Risk magazine/Technical paper
Reducing approximation errors in LPI swaps
Reducing approximation errors in LPI swaps
Volatility interpolation
Volatility interpolation
Risky funding with counterparty and liquidity charges
Risky funding with counterparty and liquidity charges
Mean reversion pays, but costs
Mean reversion pays, but costs
Event risk modelling for equities
Event risk modelling for equities
The CMS triangle arbitrage
The CMS triangle arbitrage
Choice of collateral currency
Choice of collateral currency
Continuing to rebuild
Degrees of influence
Name concentration correction
Name concentration correction
A Libor market model with a stochastic basis
A Libor market model with a stochastic basis
Correlations in asynchronous markets
Correlations in asynchronous markets
Post-shock short-rate pricing
Post-shock short-rate pricing
Breaking correlation breaks
Breaking correlation breaks
Shortfall factor contributions
Shortfall factor contributions
CVA and the equivalent bond
CVA and the equivalent bond
Two curves, one price
The financial crisis has multiplied the yield curves used to price plain vanilla interest rate derivatives, making classic single-curve no-arbitrage relations and pricing formulas no longer valid. Marco Bianchetti shows that no-arbitrage can be recovered…
Smooth calibration of Markov functional models for pricing exotic interest rate derivatives
The Libor market model is widely used but often criticised for its slowness. Nick Denson and Mark Joshi develop an accurate and stable calibration procedure that allows for the effective use of a control variate
Pricing distressed CDOs with base correlation and stochastic recovery rates
In 2008 and 2009, the calibration of the standard Gaussian copula model for collateralised debt obligations has frequently broken down. To overcome that problem, Martin Krekel has embedded the model with correlated stochastic recovery rates. He shows…
Factors on demand
Attilio Meucci introduces a multi-asset-class return decomposition framework that extends beyond the standard systematic-plus-idiosyncratic approach. This framework, which rests on the conditional link between flexible bottom-up estimation factor models…
A bottom-up model with top-down dynamics
Yadong Li proposes a flexible, tractable and arbitrage-free bottom-up dynamic correlation modelling framework with a consistent stochastic recovery specification for multi-name credit derivatives. In this framework, the model’s spread dynamics can be…
The value of a variance swap – a question of interest
Pricing equity variance swaps is well understood in the case of deterministic interest rates, but particularly for longer-dated swaps the stochastic nature of the rate cannot be ignored. Here, Per Hörfelt and Olaf Torné derive the fair strike when both…
Expanded smiles
Implementing models with stochastic as well as deterministic local volatility can be challenging. Here, Jesper Andreasen and Brian Huge describe an expansion approach for such models that avoids the high-dimensional partial differential equations usually…
A dynamic model for leveraged funds
Guido Giese derives a model for the performance and Sharpe ratio of leveraged and inverse index funds that follow a dynamic leveraged trading strategy, that is, they are rebalanced on a daily basis to ensure a constant degree of leverage with respect to…
Fast correlation Greeks by adjoint algorithmic differentiation
Adjoint methods have recently been proposed as an efficient way to calculate risk through Monte Carlo simulation. Luca Capriotti and Mike Giles extend these ideas and show how adjoint algorithmic differentiation allows for fast calculation of price…