Affine Models Of Currency Pricing
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Affine Models Of Currency Pricing
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Author : Backus David
language : en
Publisher:
Release Date : 2009
Affine Models Of Currency Pricing written by Backus David and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
Perhaps the most puzzling feature of currency prices is the tendency for high interest rate currencies to appreciate when the expectations hypothesis suggests the reverse. Some have attributed this forward premium anomaly to a time-varying risk premium but theory has been largely unsuccessful in producing a risk premium with the requisite properties. We characterize the risk premium in a general arbitrage-free setting and describe the features a theory must have to account for the anomaly. In affine models the anomaly requires either that state variables have asymmetric effects on state prices in different currencies or that we abandon the common requirement that interest rates be strictly positive.
Affine Models Of Currency Pricing
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Author : David Backus
language : en
Publisher:
Release Date : 1996
Affine Models Of Currency Pricing written by David Backus and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1996 with Foreign exchange rates categories.
Perhaps the most puzzling feature of currency prices is the tendency for high interest rate currencies to appreciate, when the expectations hypothesis suggests the reverse. Some have attributed this forward premium anomaly to a time-varying risk premium, but theory has been largely unsuccessful in producing a risk premium with the requisite properties. We characterize the risk premium in a general arbitrage-free setting and describe the features a theory must have to account for the anomaly. In affine models, the anomaly requires either that state variables have asymmetric effects on state prices in different currencies or that we abandon the common requirement that interest rates be strictly positive.
Arbitrage Free Affine Models Of The Forward Price Of Foreign Currency
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Author : J. Benson Durham
language : en
Publisher:
Release Date : 2014
Arbitrage Free Affine Models Of The Forward Price Of Foreign Currency written by J. Benson Durham and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
Forward foreign exchange contracts embed not only expected depreciation but also a sizable premium, which complicates inferences about anticipated returns. This study derives arbitrage-free affine forward currency models (AFCMs) with closed-form expressions for both unobservable variables. Model calibration to forward term structures of eleven U.S.-dollar currency pairs from the mid-to-late 1990s through early 2014 fits the data closely and suggests that the premium is indeed nonzero and variable, but not to the degree implied by previous econometric studies.
An Affine Multi Currency Model With Stochastic Volatility And Stochastic Interest Rates
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Author : Alessandro Gnoatto
language : en
Publisher:
Release Date : 2014
An Affine Multi Currency Model With Stochastic Volatility And Stochastic Interest Rates written by Alessandro Gnoatto and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
We introduce a tractable multi-currency model with stochastic volatility and correlated stochastic interest rates that takes into account the smile in the FX market and the evolution of yield curves. The pricing of vanilla options on FX rates can be performed efficiently through the FFT methodology thanks to the affinity of the model. A joint calibration exercise of the implied volatility surfaces of a triangle of FX rates shows the flexibility of our framework in dealing with the typical symmetries that characterize the FX market. Our framework is also able to describe many non trivial links between FX rates and interest rates: a second calibration exercise highlights the ability of the model to fi t simultaneously FX implied volatilities while being coherent with interest rate products.
Quadratic Term Structure Models With Jumps In Incomplete Currency Markets
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Author :
language : en
Publisher:
Release Date : 2004
Quadratic Term Structure Models With Jumps In Incomplete Currency Markets written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 with categories.
We propose a multi-currency quadratic term structure model that allows for several sources of market incompleteness. A new feature of the model is the jump-quadratic dynamics of the exchange rates that simultaneously generate greater flexibility in the time-varying risk premium and excessive currency volatility. Our model empirically outperforms the complete market quadratic and affine multi-currency diffusion models. It accounts for the forward premium anomaly with reasonable market price of risks. The market incompleteness consists of idiosyncratic diffusion-like innovations and jump discontinuities. We find that the jumps dominate the variations in the currency returns and produce most of the excessive currency volatility.
Properties Of Foreign Exchange Risk Premiums
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Author : Lucio Sarno
language : en
Publisher:
Release Date : 2011
Properties Of Foreign Exchange Risk Premiums written by Lucio Sarno and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with categories.
Monetary Policy Rules And The Term Structure Of Interest Rates
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Author : Shu Wu
language : en
Publisher:
Release Date : 2000
Monetary Policy Rules And The Term Structure Of Interest Rates written by Shu Wu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with categories.
Transform Analysis And Asset Pricing For Affine Jump Diffusions
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Author : Darrell Duffie
language : en
Publisher:
Release Date : 1999
Transform Analysis And Asset Pricing For Affine Jump Diffusions written by Darrell Duffie and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with Bonds categories.
In the setting of affine' jump-diffusion state processes, this paper provides an analytical treatment of a class of transforms, including various Laplace and Fourier transforms as special cases, that allow an analytical treatment of a range of valuation and econometric problems. Example applications include fixed-income pricing models, with a role for intensityy-based models of default, as well as a wide range of option-pricing applications. An illustrative example examines the implications of stochastic volatility and jumps for option valuation. This example highlights the impact on option 'smirks' of the joint distribution of jumps in volatility and jumps in the underlying asset price, through both amplitude as well as jump timing.
Do We Need Multi Country Models To Explain Exchange Rate And Interest Rate Dynamics
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Author : Robert Hodrick
language : en
Publisher:
Release Date : 1999
Do We Need Multi Country Models To Explain Exchange Rate And Interest Rate Dynamics written by Robert Hodrick and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with Foreign exchange rates categories.
International Yield Curves And Currency Puzzles
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Author : Mikhail Chernov
language : en
Publisher:
Release Date : 2018
International Yield Curves And Currency Puzzles written by Mikhail Chernov and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with Bonds categories.
Exchange rates are not spanned by bonds. Thus, one has to incorporate exchange rates into estimation of affine no-arbitrage yield curve models to measure international pricing kernels. That helps with resolving the famous currency puzzles: the estimated model captures UIP violations and exchange rate volatility. Currency risk premiums are at the center of both differences between the US yields and their foreign counterparts, and between the corresponding bond risk premiums. The model suggests variables that are correlated with both currency and bond premiums.