This paper presents a validation framework for collateral requirements or margins on a derivatives exchange. It can be used by investors, risk managers, and regulators to check the accuracy of a margining system. The statistical tests presented in this study are based either on the number, frequency, magnitude, or timing of margin exceedances, which are de…ned as situations in which the trading...

We consider American option pricing in the context of the widely adopted stochastic volatility model of Heston (1993). While estimating such model is challenging, we develop a pricing technique that is both efficiently accurate and robust with respect to estimates of spot and equilibrium volatilities. Our approach is based on a well-developed and efficient procedure for the constant volatility ...

Despite many past papers concerning a …rm’s capital structure, the valuation of debt and equity and cost of capital, there are few that explicitly codify contingent sharing rules for the …rm’s cash‡ow over time. We motivate equity and debt valuation by modeling tax and distress costs using cap and ‡oor technology as well as a default option at maturity. This approach sheds light on theoretical ...

Can shorter maturity European options be statically hedged with longer maturity plain vanilla options? This problem appears for example when analyzing options on forwards in relation to liquid options on the spot underlying. Under mild assumptions on the underlying security price process and on the option’s payoff function we show that approximate static hedges exist und we provide a recipe for...

We introduce a novel approach to estimating latent oil risk factors and establish their significance in pricing non-oil securities. Our model, which features four factors with simple economic interpretations, is estimated using both derivative prices and oil-related equity returns. The fit is excellent in and out of sample. The extracted oil factors carry significant risk premia, and are signif...

ABSTRACT Morphological remodeling of dendritic spines is critically involved in memory formation and depends on adhesion molecules. Serotonin receptors are also implicated this remodeling, though the underlying mechanisms remain enigmatic. Here, we uncovered a signaling pathway involving molecule L1CAM (L1) serotonin receptor 5-HT4 (5-HT4R, encoded by HTR4). Using Förster resonance energy trans...