October 18, 2019
11:00 - 12:00
ISBA - C115 (Seminar Room Bernoulli) tbc
JOINT ISBA/LFIN Statistics Seminar
Yang Lu, Université Paris 13, France
"Noncausal Affine Process with Applications to Derivative Pricing"
A B S T R A C T
Linear factor models, where the factors are affine processes, play a key role in Finance, since they allow for quasi-closed form expressions of the term structure of risks. We introduce the class of noncausal affine linear factor models by considering factors that are affine in reverse time. These models are especially relevant for pricing sequences of speculative bubbles. We show that they feature much more complicated non affine dynamics in calendar time, while still providing (quasi) closed form term structures and derivative pricing formulas. The framework is illustrated with zero-coupon bond and European call option pricing examples.