Search

The information content and predictive power of the Italian term spread for the real economic growth rates and recession probabilities are determined. The recession forecasts are shown to be much better and accurate, as compared to the other chronologies.

The impact of business cycles, on default risk under Basel II, is examined.

This paper analyses short-term portfolio investment opportunities in a capital market where a currency is defined as a currency basket. In line with the mean-variance hedging approach, a self-financed optimal [...]

This paper assesses the impact on capital requirements of the Fundamental Review of the Trading Book (FRTB) based on a stylised financial portfolio sensible to the risk factors affected by the review. Our results show the order of magnitude of the increase across the two regulations and the two possible approaches: the standard approach and the internal model approach. We further disentangle the components of the expected increase implied by the FRTB. The most interesting result emerges for the internal model approach, whereby the increase in the capital charge is attributable not only to the change in the risk measure and the inclusion of longer liquidity horizons, but most importantly to the dampening of the diversification benefit.

The aim of this paper is to analyse the pricing of highly structured convertible bonds by taking a real world case. To this end we examine the Cashes (Convertible And Subordinated Hybrid Equity-linked Securities), which are characterised by both voluntary and mandatory conversion that depend on different triggering events, as well as floating coupons whose payment hinges on dividends and earning of the issuer. Our results highlight that prices are very sensitive to the modelling of the sources of uncertainty, both market and credit risk, and underscore the relevance of the time horizon chosen for the estimation.

We describe in this paper a variance reduction method based on control variates. The technique uses the fact that, if all stochastic assets but one are replaced in the payoff function by their mean, the resulting integral can most often be evaluated in closed form. We exploit this idea by applying the univariate payoff as control variate and develop a general Monte Carlo procedure, called Mean Monte Carlo (MMC). The method is then tested on a variety of multifactor options and compared to other Monte Carlo approaches or numerical techniques. The method is of easy and broad applicability and gives good results especially for low to medium dimension and in high volatility environments.