ERN: Other Econometric Modeling: Derivatives (Topic)最新文献

{"title":"Do VIX and Trading Volume Subsume Incremental Information above GARCH-Type Models for the Volatility Forecast?","authors":"Fangjhy Li","doi":"10.2139/ssrn.3498517","DOIUrl":"https://doi.org/10.2139/ssrn.3498517","url":null,"abstract":"The VIX index and trading volume (VO) can subsume information of the future volatility in financial markets, and therefore, have been commonly used as volatility forecasting instruments. Previous studies have identified superior VIX- and VO-based forecasts compared to various GARCH-type models, while contradictory evidence for the outperformance of GARCH-based forecasts rises controversies about the optimal forecast. To evaluate whether VIX and VO may subsume incremental information over GARCH-type models, this paper evaluates the volatility forecast efficiency of VIX, VO and GARCH.<br><br>Latest daily VIX, VO and SPX during 01/01/2006-17/07/2017 are sorted from Bloomberg. To access the forecast efficiency, Mincer-Zarnowitz (MZ, 1969) regression, the forecast encompassing test and root-mean-square error (RMSE) are to be applied. The present empirical result indicates incremental information in VIX, while VO seems to subsume little or no additional information over GARCH, which contradicts previous findings of Kambouroudis and McMillan (2016).<br><br>Recent concerns about the influence of financial turmoil on the volatility forecast have generated a considerable body of research; however, most previous investigations of the volatility forecast efficiency have not addressed this issue. Hence, this paper is motivated to identify the effect of 2008 financial crisis on the volatility estimates. Current findings confirm a negative crisis dilution effect occurred in 2012, especially for VO-based predictions. The identified dilution effect demonstrated a negative influence of turmoil on volatility forecasts due to the disruption of the economic condition during the post-crisis period. Further work is recommended on validating this issue in various financial markets, such as foreign exchange markets.","PeriodicalId":177064,"journal":{"name":"ERN: Other Econometric Modeling: Derivatives (Topic)","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-08-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116989695","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"KVA from the Beginning","authors":"Mats Kjaer","doi":"10.2139/ssrn.3036826","DOIUrl":"https://doi.org/10.2139/ssrn.3036826","url":null,"abstract":"Understanding the interaction between a new derivative, its financing and the wider balance sheet during pricing is critical for dealer profitability. For this purpose we extend a single period structural balance sheet model developed in Andersen, Duffie and Song to include equity financing before deriving consistent firm and shareholder break even prices. The former is given by the risk neutral expectation of the derivative cash flow in all scenarios including dealer default, discounted at the risk-free rate. The latter on the other hand is given by a dealer survival measure expectation of the derivative cash flow, including at counterparty default, discounted at the dealer weighted average rate of capital. This discounting rate is partially determined by the minimum amount to equity funding required by regulators. We next show how the shareholder break even price can be split into funding and capital valuation adjustments. All results are valid whether the dealer chooses to hedge the derivative or not.","PeriodicalId":177064,"journal":{"name":"ERN: Other Econometric Modeling: Derivatives (Topic)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122574495","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Unspanned Stochastic Volatility, Conformal Symmetries, and Stochastic Time","authors":"Gregory Pelts","doi":"10.2139/ssrn.3001967","DOIUrl":"https://doi.org/10.2139/ssrn.3001967","url":null,"abstract":"For the last decade, short-term rates of major currencies were consistently low and occasionally negative. Meanwhile, longer-term rates remained relatively high and volatile. This phenomenon added extra complexity to the the already formidably difficult task of pricing and hedging interest rate derivatives, rendering conventional approaches virtually defunct. We have observed that the application of jump diffusion in conjunction with conformal geometry allows to successfully tackle such market behavior in a fully consistent, tractable, and computationally efficient manner. \u0000 \u0000The approach provides explicit parametric yield curves with arbitrage-free dynamics, and, in certain cases, even closed-form formulae for yield distributions. This is achieved without compromising efficiency or calibration flexibility. In particular, the 4D version of the model has been successfully calibrated to the swaption market with acceptable precision. \u0000 \u0000The methodology has been applied in valuation of various exotic interest rate derivatives.","PeriodicalId":177064,"journal":{"name":"ERN: Other Econometric Modeling: Derivatives (Topic)","volume":"6 2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126051497","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Uniform Integrability of a Single Jump Local Martingale with State-Dependent Characteristics","authors":"Mitchell T Schatz, D. Sornette","doi":"10.2139/ssrn.2987695","DOIUrl":"https://doi.org/10.2139/ssrn.2987695","url":null,"abstract":"We investigate a deterministic criterion to determine whether a diffusive local martingale with a single jump and state-dependent characteristics is a uniformly integrable martingale. We allow the diffusion coefficient, the jump hazard rate and the relative jump size to depend on the state and prove that the process is a uniformly integrable martingale if and only if the relative jump size is bounded away from one and the hazard rate is large enough compared to the diffusion component. The result helps to classify seemingly explosive behaviour in diffusive local martingales compensated by the existence of a jump. Moreover, processes of this type can be used to model financial bubbles in stock prices as deviation from the fundamental value. We present a simple framework to illustrate this application.","PeriodicalId":177064,"journal":{"name":"ERN: Other Econometric Modeling: Derivatives (Topic)","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124588269","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Pricing of Rainfall Derivatives Using Generalized Linear Models of the Daily Rainfall Process","authors":"Anand Shah","doi":"10.2139/ssrn.2978611","DOIUrl":"https://doi.org/10.2139/ssrn.2978611","url":null,"abstract":"The structure of a typical rainfall insurance is complex; insurance payoffs are based on many parameters such as the rainfall volume, the rainfall distribution (the number of consecutive dry days), the number of days with excess rainfall etc. Such a complex insurance structure is essential to minimize the basis risk and to amply compensate a farmer for the loss of the crop yield due to the rainfall weather event. A rainfall derivative could always be brokered as a rainfall insurance or a traded option. To price complex rainfall insurances or to trade complex financial instrument based on the rainfall index on the capital markets, the underlying daily rainfall process needs to be modelled. The daily rainfall modelling is essential because the trading of any financial instrument based on the rainfall index requires the pricing of the instrument contingent on the daily rainfall information as it becomes available. \u0000In this work, we price a rainfall derivative by modelling the underlying daily rainfall process using generalized linear models (GLMs). The rainfall occurrence process is modelled using a binomial GLM and the rainfall intensity process is modelled using a quasi-likelihood GLM with the gamma, the Pareto and the lognormal distribution assumptions. Our models estimate the average annual monsoon rainfall correctly but overestimate the standard deviation, the skewness and the excess kurtosis of the annual monsoon rainfall distribution. The expected total derivative payoff obtained using only the models with the gamma distribution assumption is comparable to that obtained from Burn analysis. There was no significant gain from using a model with two auto-regressive rainfall intensity terms.","PeriodicalId":177064,"journal":{"name":"ERN: Other Econometric Modeling: Derivatives (Topic)","volume":"37 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131586150","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Econometric Identification of Foreign Exchange Options Volatility Surfaces Recovering Foreign Exchange Option Prices from Spot Price Dynamics","authors":"J. Cook, Dennis Philip, Handing Sun, Julian M. Williams","doi":"10.2139/ssrn.2865796","DOIUrl":"https://doi.org/10.2139/ssrn.2865796","url":null,"abstract":"Over-the-counter foreign exchange options are the fourth largest derivatives market (by asset class) in the world, but this market is little studied in the finance literature. We propose a new set of modelling tools for pricing options on this market and demonstrate their applicability to five liquid currencies versus the dollar. Our discrete time affine nested GARCH based model specification is the first of its type to be estimated directly from spot foreign exchange and short rate (timed deposit) quotes. Out-of-sample testing suggests that an affine term structure with stochastic volatility model estimated at a monthly frequency outperforms most specifications with no recourse to option market quotes to assist calibration. Indeed, this model outperforms a realized variance model by almost an order of magnitude, across all quote types, when compared to observed option market data.","PeriodicalId":177064,"journal":{"name":"ERN: Other Econometric Modeling: Derivatives (Topic)","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-05-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130874773","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"The Short-Time Behaviour of VIX Implied Volatilities in a Multifactor Stochastic Volatility Framework","authors":"Andrea Barletta, E. Nicolato, S. Pagliarani","doi":"10.2139/ssrn.2942262","DOIUrl":"https://doi.org/10.2139/ssrn.2942262","url":null,"abstract":"We consider a modelling setup where the VIX index dynamics are explicitly computable as a smooth transformation of a purely diffusive, multidimensional Markov process. The framework is general enough to embed many popular stochastic volatility models. We develop closed-form expansions and sharp error bounds for VIX futures, options and implied volatilities. In particular, we derive exact asymptotic results for VIX implied volatilities, and their sensitivities, in the joint limit of short time-to-maturity and small log-moneyness. The obtained expansions are explicit, based on elementary functions and they neatly uncover how the VIX skew depends on the specific choice of the volatility and the vol-of-vol processes. Our results are based on perturbation techniques applied to the infinitesimal generator of the underlying process. This methodology has been previously adopted to derive approximations of equity (SPX) options. However, the generalizations needed to cover the case of VIX options are by no means straightforward as the dynamics of the underlying VIX futures are not explicitly known. To illustrate the accuracy of our technique, we provide numerical implementations for a selection of model specifications.","PeriodicalId":177064,"journal":{"name":"ERN: Other Econometric Modeling: Derivatives (Topic)","volume":"58 7","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120816688","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Algorithmic Differentiation for Callable Exotics","authors":"A. Antonov","doi":"10.2139/ssrn.2839362","DOIUrl":"https://doi.org/10.2139/ssrn.2839362","url":null,"abstract":"In this article, we study the algorithmic calculation of present values greeks for callable exotic instruments. The speed of greeks evaluations becomes important with recent initial margin rules, including the ISDA standard model SIMM, requiring sensitivity calculations for non-cleared deals (e.g. callable exotic/structured products) for a large set of risk factors and on a daily basis.In general, present values of callable trades are obtained by the backward repetitive application of conditional expectation via least-squares Monte Carlo (regression) and arithmetic operations encoded in so called pricing (payoff) script. By nature, this pricing procedure is known to be computationally intensive leading to very slow greeks, if computed by a simple bump-and-reprice. The fast alternative is the adjoint differentiation (AD) method. However, a direct application of the AD is not straightforward because regressions introduce path interdependency, whereas traditional AD is applied on a path-by-path basis. We describe how to extend the traditional AD method to include the regressions. Usually, the procedure must include the recording of information in a data structure, often referred to as the instrument tape, during the backward pricing. This is followed by a subsequent \"playback\" of the tape in which the recorded information is used to compute the greeks. The tape adds a significant complexity to the AD implementation and can introduce memory issues (due to the significant storage demands), coding and debugging difficulties, etc.Next, we propose a new tapeless differentiation method, called backward differentiation (BD), for exotic deals. It is applied during the backward pricing procedure following the payoff script. Importantly, it completely avoids the tape and all of its related complications.We demonstrate the efficiency of the BD on the example of a Bermudan swaption calculated with a one-factor Hull-White model. For 50-100 greeks, the BD calculation time is only 2-6 times slower than a single pricing which leads to up 20 times acceleration with respect to the bump-and-reprice. We also give a numerical convergence analysis demonstrating the high quality of the BD greeks.","PeriodicalId":177064,"journal":{"name":"ERN: Other Econometric Modeling: Derivatives (Topic)","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-04-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123165612","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Maturity Structure of Commodity Roll Strategies: Evidence from the Energy Futures","authors":"Hamed Ghoddusi","doi":"10.2139/ssrn.2820228","DOIUrl":"https://doi.org/10.2139/ssrn.2820228","url":null,"abstract":"We investigate the maturity-structure of roll strategy returns in the energy futures markets. Our innovation is to report and analyze the risk/return profile, the Sharpe ratio, and the asset pricing loadings of rollover strategies based on futures contracts of the same underlying commodity but with maturities between two and 12 months. We find that a conditional rollover strategy, which takes a long position in backwardation and a short position in contango, delivers the highest Sharpe ratio for all commodities. While we don't observe a significant difference in terms of asset pricing beta for different roll positions, the Sharpe ratio tends to be higher for contracts with a shorter time to maturity. We also report some distinct patterns of maturity-structure across energy commodities. Findings of the paper have implications for managing commodity-based investments.","PeriodicalId":177064,"journal":{"name":"ERN: Other Econometric Modeling: Derivatives (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-08-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129211085","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Does OTC Derivatives Reform Incentivize Central Clearing?","authors":"Samim Ghamami, P. Glasserman","doi":"10.2139/ssrn.2819714","DOIUrl":"https://doi.org/10.2139/ssrn.2819714","url":null,"abstract":"Regulatory changes in the over-the-counter (OTC) derivatives market seek to reduce systemic risk. The reforms require that standardized derivatives be cleared through central counterparties (CCPs), and they set higher capital and margin requirements for non-centrally cleared derivatives. We investigate whether these requirements create a cost incentive in favor of central clearing, as intended. We compare the total capital and collateral costs when banks transact fully bilaterally and when they clear all contracts through CCPs. We calibrate our model using data on the OTC market collected by the Federal Reserve. We find that the cost incentive may not favor central clearing. The main factors driving the cost comparison are netting benefits, the margin period of risk, and CCP guarantee fund requirements. Lower guarantee fund requirements lower the cost of clearing but make CCPs less resilient.","PeriodicalId":177064,"journal":{"name":"ERN: Other Econometric Modeling: Derivatives (Topic)","volume":"142 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-07-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121874409","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}