In this paper a bond market model and the related term structure of interest rates are studied where prices of zero coupon bonds are driven by a jump-diffusion process. A criterion is derived on the deterministic forward rate volatilities under which the short rate process is Markovian. In the case that the volatilities depend on the short rate sufficient conditions are presented for the existe...

In this paper, we propose a unifying class of affine-quadratic term structure models (AQTSMs) in the general jump-diffusion framework. Extending existing term structure models, the AQTSMs incorporate random jumps of stochastic intensity in the short rate process. Using information from the Treasury futures market, we propose a GMM approach for the estimation of the risk-neutral process. A disti...

Using market prices for crude-oil futures options and the prices of their underlying futures contracts, we estimate the volatility skew in two ways. As a benchmark for our theoretical model, on each date we first estimate a crosssectional polynomial structure for each maturity to demonstrate the strength and weaknesses of a purely-mechanical model. We then apply to the empirical data a Merton-s...

This article investigates the valuation of annuity guarantees under a regime-switching model when dynamics underlying stock price follow self-exciting switching jump-diffusion process. In this framework, we add jump component to geometric Brownian for large shocks on price. The intensity shock arrivals is Hawkes process modulated by continuous time hidden Markov chain with finite number states....

We study the problem of optimally liquidating a large portfolio position in a limit order book market. We allow for both limit and market orders and the optimal solution is a combination of both types of orders. Market orders deplete the order book, making future trades more expensive, whereas limit orders can be entered at more favorable prices but are not guaranteed to be filled. We model the...

A computational solution is found for a optimal consumption and portfolio policy problem in which the underlying stock satisfies a geometric jump–diffusion in which both the diffusion and jump amplitude are log– normally distributed. The optimal objective is to maximize the expected, discounted utility of terminal wealth and the cumulative discounted utility of instantaneous consumption. The ju...

A computational solution is found for a optimal consumption and portfolio policy problem in which the underlying stock satisfies a geometric jump–diffusion in which both the diffusion and jump amplitude are log–normally distributed. The optimal objective is to maximize the expected, discounted utility of terminal wealth and the cumulative discounted utility of instantaneous consumption. The jum...