You could try using the Gaussian Affine Term Structure Models (GATSM), with the right boundary conditions to stop rates being negative (in the style of their Black implementation). See, for example, ...

Via Liquidity Horizons $LH$ (which have to be taken into consideration anyway when modelling for $Basel_3$) as function of the specific concentrations $c$'s. Increasing the effective maturity of the ...

Paul Wilmott on Quantitative Finance.

I would suggest you to add spreads to the implied hazard rates, spreads that you regress on the macroeconomic factors. Then you stress by calculating the spreads corresponding to the stressed factors.

To check your results, you might try "The Heston Model: A Practical Approach with Matlab Code" by Nimalin Moodley, http://math.nyu.edu/~atm262/fall06/compmethods/a1/nimalinmoodley.pdf , in particular ...

The two are not equivalent, because of the cross-currency basis spread (CCBS), which became a risk factor in itself sice 2007, and does depend on term. This practically leeds to a difference in your ...

The CVA charge in Basel iii reporting increases the capital required for OTC derivatives trading. Apart from CVA, there are DVA and FVA that are important. The adjustments might be unitary reffered to ...

The NPV of a zero coupon bond Z, in the currency in which it has been emitted: Z(t)= Notional*[Z(0)* exp (yiled (Z;t)*t)] and yield(Z;t)=Z(0)*t+ epsilon Where ----- t is the time since the ...

This does not sum to 1 because you have forgotten to add the 6th scenario, the NonDefault (ND). If Ps is the probability of survival and Pd the probability of default, the ND has the probability Ps^...

Answering "No" to the title question, I'll mention that variance is a rather poor measure of risk, even if convinient and nicely behaving. Variance is not even a risk measure, with the standard ...

Have you tried a swaption having a marked to market of the notional N at t_1=retirement age? From t_0=contract signing untill t_1, you receive the rate r_payments and pay the risk-free/investment ...

You rewrite your XL functions as unique, massive function, which receives all the input your Excel needs and outputs the valu(es) you are interested in. Transform this unique function into an ...

OneSumX (FRS Global - now officially Wolters Kluwer Financial Services). Due to the impact on market risk (explicit creation of new contracts from available liquidity lines, firstly affected by ...

I would confirm it. For time series forecasting, one can use 3 versions of random walk: RW model 1 (basic geometric random walk): stock returns in different periods are statistically independent (...

The Wiki pages seemed to have been upgraded :) http://en.wikipedia.org/wiki/Renaissance_Technologies Investment strategy Renaissance uses computer-based models to predict price changes in easily-...

http://uk.reuters.com/article/2012/11/27/efsf-bond-idUKL5E8MR6I220121127 Nov 27: The order book on the European Financial Stability Facility one-year syndicated issue is over EUR 5bn according to a ...

No. The shadow pricing of goods theory can explain the presently observed negative interest rates bonds. A shadow interest rate shows when the expected return is greater than interest rate (as firms ...

The weights are, by definition, positive, and add to do normalization to the total amount the wights are calculated for. The title of the question does not make sense. However, what it happend in ...

The risk measures the deviation from the zero expected return (no free lunch). If the asset produces a profit of +p or a loss of -p, it is equally risky.

Islamic Banking (IB) has a different view on financial risk: The required minimum share holders equity must be lower than for counterparties in conventional banks because credit risk is also ...

In a futures contract, the exchange clearing house itselfs acts as/is the counterparty to both parties in the contract (and this is why the credit risk is heavily reduced). Futures are not issued (...

In my opinion the internal rate of return should be used in the discounting factor which enters the NPV calculation, weighted by some credit risk factor, or having added a credit risk spread. Unless ...

I am not sure if I have correctly understood your problem. But, as you want to detect the market sentiment (bear/bull), you imply that there is extra information in the market that is not included in ...

Any spread that adds to the risk free rate is made by credit spread (the counterparty will not return the security) and liquidity spread (the need of the market for that security). In a Repurchase ...

you could calculate and subtract the trend. dx=h(m-x)*dt+s*dz x_(t) - x_(t - 1) = m (1 - exp(- h Dt)) + (exp(- h Dt) - 1) x_(t - 1) + e_t error e_t normally distributed with (s_e)^2 = [1 - exp(- 2 ...

Mind the "side-effects" of CVA: DVA and FVA. Antonio Castagna has some clear introduction to them ("Funding, Liquidity, Credit and Counterparty Risk: Links and Implications" - for DVA, and "Yes, FVA ...

When you do bootstrapping, the actual problem is that you have too few events to really get an actual distribution. There are X methods to get the original set enriched, reinserting the events based ...

Cash is not unlimited. And, if everybody invested in cash while cash getting unlimited, in the end one is in a world filled with papers, which lose their value. Secondly, but now last, banks, ...