Discrete Choice Term Structure Models: Theory and Applications

Feunou, Bruno; Fontaine, Jean‐Sébastien; Jin, Jianjian

doi:10.2139/ssrn.1772971

Cited by 3 publications

(3 citation statements)

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“…Feunou and Fontaine (2012) introduce the family of Discrete Choice Dynamics Term Structure models. They define the policy response function as an ordered discrete choice problem (McFadden, 1984) and obtains asset pricing results to develop a model of the term structure of yields.…”

Section: The Challenges Aheadmentioning

confidence: 99%

“…4 However, the evidence suggests that the risk premium in Fed funds futures rates exhibits significant variations. 5 This calls for a dynamic term structure model that combines 3 Notable exceptions include Rudebusch (1995), Balduzzi et al (1997), Hamilton and Jordà (2002), Piazzesi (2005a) and, recently, Fontaine (2011), Feunou andFontaine (2012) and Renne (2012).…”

mentioning

confidence: 99%

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Estimating the policy rule from money market rates when target rate changes are lumpy

Fontaine

2014

Developments in Macro-Finance Yield Curve Modelling

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Section: The Challenges Aheadmentioning

confidence: 99%

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confidence: 99%

Estimating the policy rule from money market rates when target rate changes are lumpy

Fontaine

2014

Developments in Macro-Finance Yield Curve Modelling

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“…Other papers, such as Feunou and Meddahi (2009), provide a general framework that characterizes the infinite-order affine model. Some prominent examples of non-affine models are Ahn and Gao (1999);Feunou and Fontaine (2010). market returns.…”

Section: Introductionmentioning

confidence: 99%

Fourier inversion formulas for multiple-asset option pricing

Feunou

Tafolong

2015

Studies in Nonlinear Dynamics &Amp; Econometrics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. (2000) shows how to invert the characteristic function to obtain a closed-form formula for their prices. However, multiple-asset and multiple-condition derivatives such as rainbow options cannot be priced within this framework. Utilizing inversion of the Fourier transform -and resorting to neither the Black-Scholes framework nor the affine models settings -the authors provide an analytical solution for options whose payoffs depend on two or more conditions. Numerical experiments based on the multiple-asset and multiple-condition derivatives are provided to illustrate the usefulness of the proposed approach. Terms of use: Documents in JEL classification: G12 Bank classification: Asset pricing RésuméLes options classiques n'ont qu'un sous-jacent, et leur valeur à l'échéance est déterminée par une seule condition. Un des apports bien connus de l'étude de Duffie, Pan et Singleton (2000) est d'avoir montré comment utiliser la transformée inverse de la fonction caractéristique pour obtenir une formule analytique des prix dans cette classe d'options. Or, les prix des dérivés à plusieurs sous-jacents et conditions, tels que les options arc-en-ciel, ne peuvent être évalués à l'intérieur de ce cadre. En s'appuyant sur la formule d'inversion de la transformée de Fourier, mais sans recourir au modèle de Black et Scholes ni aux modèles affines, les auteurs proposent une solution analytique pour calculer le prix d'options dont la valeur à l'échéance est déterminée par deux conditions ou plus. Ils procèdent à des expériences numériques afin d'illustrer l'utilité de l'approche proposée dans le cas des dérivés à plusieurs sous-jacents et conditions. Classification JEL : G12 Classification de la Banque : Évaluation des actifs iv Non-Technical SummaryDerivatives (or options) pricing is an important topic for both academics and practitioners. Two approaches are generally considered when pricing a derivative, namely numerical methods and closed-form expressions. There are numerous advantages of having closed-form derivatives prices, among them: (1) they enable a quick and efficient computation of the price, (2) they can be used to evaluate derivatives' price sensitivity to a given parameter, and (3) they are useful in qualitative analysis. Unfortunately, combining closed-form and realistic dynamics (on assets underlying the derivative) has proven very challenging.Other works in the literature evaluate derivatives written on a single stock. However, this paper proposes a clos...

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Pricing Multiple Triggers Contingent Claims

Feunou

Tafolong

2010

SSRN Journal

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Discrete Choice Term Structure Models: Theory and Applications

Cited by 3 publications

References 29 publications

Estimating the policy rule from money market rates when target rate changes are lumpy

Estimating the policy rule from money market rates when target rate changes are lumpy

Fourier inversion formulas for multiple-asset option pricing

Pricing Multiple Triggers Contingent Claims

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