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226
The Determinants of Credit Spread Changes.
 Journal of Finance
, 2001
"... ABSTRACT Using dealer's quotes and transactions prices on straight industrial bonds, we investigate the determinants of credit spread changes. Variables that should in theory determine credit spread changes have rather limited explanatory power. Further, the residuals from this regression are ..."
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Cited by 422 (2 self)
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, contingentclaims pricing is most readily accomplished by pricing derivatives under the socalled riskneutral measure, where all traded securities have an expected return equal to the riskfree rate (see Cox and Ross (1976) and Harrison and Kreps (1979)). In particular, the value of the debt claim
Calibrating riskneutral default correlation
, 2006
"... The implementation of credit risk models has largely relied either on the use of historical default dependence, as proxied by the correlation of equity returns, or on equicorrelation, as extracted from CDOs. The drawbacks of equicorrelation are well known from the correlation smile: credit derivativ ..."
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derivative pricing would therefore pro
t from riskneutral dependence measures without the equicorrelation assumption. Using the copula methodology, we show how to infer them from CDS data, taking counterparty risk into consideration. We also provide a market application and explore its impact on the fees
ITÔ CALCULUS AND DERIVATIVE PRICING WITH RISKNEUTRAL MEASURE
"... Abstract. This paper will develop some of the fundamental results in the theory of Stochastic Differential Equations (SDE). After a brief review of stochastic processes and the Itô Calculus, we set our sights on some of the more advanced machinery needed to work with SDE. Chief among our results are ..."
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are the FeynmanKac Theorem, which establishes a link between stochastic methods and the classic PDE approach, and the Girsanov theorem, which allows us to change the drift of an Itô diffusion by switching to an equivalent martingale measure. These results are also valuable on a practical level, and we
A RiskNeutral Stochastic Volatility Model
, 1998
"... this paper, we study a riskneutral pricing model in the context of lognormally distributed stochastic volatility. In order to find a riskneutral probability measure suitable for pricing options and OTC derivatives, we have to analyze hedging strategies involving a traded asset which is perfectly c ..."
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Cited by 10 (0 self)
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this paper, we study a riskneutral pricing model in the context of lognormally distributed stochastic volatility. In order to find a riskneutral probability measure suitable for pricing options and OTC derivatives, we have to analyze hedging strategies involving a traded asset which is perfectly
Riskneutral hedging of interest rate derivatives
, 2011
"... In this paper we review the hedging of interest rate derivatives priced under a riskneutral measure, and we compute selffinancing hedging strategies for various derivatives using the ClarkOcone formula. ..."
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In this paper we review the hedging of interest rate derivatives priced under a riskneutral measure, and we compute selffinancing hedging strategies for various derivatives using the ClarkOcone formula.
Option Pricing: Real and RiskNeutral Distributions
"... The central premise of the Black and Scholes [Black, F., Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy 81, 637–659] and Merton [Merton, R. (1973). Theory of rational option pricing. Bell Journal of Economics and Management Science 4, 141–184] opti ..."
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Cited by 3 (0 self)
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either because the market is incomplete or because it is imperfect due to the presence of trading costs, or both. Market incompleteness renders the riskneutral probability measure non unique and allows us to determine the option price only within a range. Recognition of trading costs requires a
Riskneutral modelling with affine and nonaffine models
, 2008
"... Option prices provide a great deal of information regarding the market’s expectations of future asset price dynamics. But, the implied dynamics are under the riskneutral measure rather than the physical measure under which the price of the underlying asset itself evolves. This paper demonstrates so ..."
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Cited by 2 (1 self)
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Option prices provide a great deal of information regarding the market’s expectations of future asset price dynamics. But, the implied dynamics are under the riskneutral measure rather than the physical measure under which the price of the underlying asset itself evolves. This paper demonstrates
Nonparametric and Semiparametric Modeling and Estimation of RiskNeutral Densities
"... Summary. This chapter deals with nonparametric estimation of the risk neutral density. We present three different approaches which do not require parametric functional assumptions neither on the underlying asset price dynamics nor on the distributional form of the risk neutral density. The first e ..."
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establishes the risk neutral density conditional on the physical measure of the underlying asset. Via direct series type estimation of the pricing kernel we can derive an estimate of the risk neutral density by solving a constrained optimization problem. The performance of the presented methods is compared
The RiskNeutral Measure and Option Pricing under LogStable Uncertainty
, 2003
"... The fact that expected payo¤s on assets and call options are in…nite under most logstable distributions led both Paul Samuelson (as quoted by Smith 1976) and Robert Merton (1976) to conjecture that assets and derivatives could not be reasonably priced under these distributions, despite their attrac ..."
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Cited by 8 (1 self)
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is logstable, the Risk Neutral Measure (RNM) under which asset and derivative prices may be computed as expectations is not itself logstable in the problematic cases. Instead, the RNM is determined by the convolution of two densities, one negatively skewed stable, and the other an exponentially tilted
RiskNeutral vs RiskAverse Pricing Traditional arbitragefree pricing is based on a riskneutral expectation:
"... → linear pricing rule. → independent of risk preferences and historical measure P. → more than one candidate pricing measure in incomplete markets. Utility indifference pricing incorporates investors ’ risk preferences into pricing via utility maximization. → nonlinear pricing rule. → indifference p ..."
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→ linear pricing rule. → independent of risk preferences and historical measure P. → more than one candidate pricing measure in incomplete markets. Utility indifference pricing incorporates investors ’ risk preferences into pricing via utility maximization. → nonlinear pricing rule. → indifference
Results 1  10
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226