• Section A gathers robustness checks on empirical results: subsection A.1 reports additional time-series predictability results; subsection A.2 reports additional results on portfolios of countries sorted by the deviation of their short-term interest rate from its 10-year rolling mean; subsection A.3 reports results on portfolios of countries sorted by the short-term interest rate level; subse...

The Vasicek distribution is a two-parameter probability model with bounded support on the open unit interval. This allows for different and flexible shapes plays an important role in many statistical applications, especially modeling default rates field of finance. Although its density function resembles some well-known distributions, such as beta Kumaraswamy models, has not been considered to ...

This paper develops a continuous time portfolio optimization model where the mean returns of individual securities or asset categories are explicitly affected by underlying economic factors such as dividend yields, a firm's ROE, interest rates, and unemployment rates. The factors are Gaussian processes, and the drift coefficients for the securities are aEne hnctions of these factors. We employ ...

A new methodology is proposed to estimate theortical prices of financial contingent-claims whose values are dependent on some other underlying financial assets. In the literature the preferred choice of estimator is usually maximum likelihood (ML). ML has strong asymptotic justification but is not necessarily the best method in finite samples. The present paper proposes instead a simulation-bas...

We investigate numerical valuation of cross-currency interest rate-based derivatives under Babbs' extended Vasicek-style model by numerical solution of the associated partial di erential equation (PDE) | in particular, we consider the terminable di erential (di ) swap. Firstly we precisely formulate, in terms of their cash ows, various types of single and cross-currency swaps and swaptions. We ...

A new methodology is proposed to estimate theortical prices of financial contingent-claims whose values are dependent on some other underlying financial assets. In the literature the preferred choice of estimator is usually maximum likelihood (ML). ML has strong asymptotic justification but is not necessarily the best method in finite samples. The present paper proposes instead a simulation-bas...

This paper evaluates the use of the nonparametric kernel method for testing specification of diffusion models as originally considered in Aı̈t-Sahalia (1996). A serious doubt on the ability of the kernel method for diffusion model testing has been cast in Pritsker (1998), who observes severe size distortion of the test proposed by Aı̈t-Sahalia and finds that 2755 years of data are required in ord...