Pricing Spread Options using Matched Asymptotic Expansions

This document deals with approximating spread options prices using Matched Asymptotic Expansions techniques on the correlation. More precisely, it deals with spreads options on assets that are highly correlated (ρ ∼ 1), which is most commonly observed in Oil Markets (Crude Oil vs. Gasoline for example). We will first start by applying this methodology to exchange options before generalizing our results to spread options. Then we are going to describe an alternative approach of pricing spread options by approximating the bivariate normal distribution. Finally, we will see how we can apply our methodology to the case where we have more than two assets

The structure of verbal sequences analyzed with unsupervised learning techniques

Data mining allows the exploration of sequences of phenomena, whereas one usually tends to focus on isolated phenomena or on the relation between two phenomena. It offers invaluable tools for theoretical analyses and exploration of the structure of sentences, texts, dialogues, and speech. We report here the results of an attempt at using it for inspecting sequences of verbs from French accounts of road accidents. This analysis comes from an original approach of unsupervised training allowing the discovery of the structure of sequential data. The entries of the analyzer were only made of the verbs appearing in the sentences. It provided a classification of the links between two successive verbs into four distinct clusters, allowing thus text segmentation. We give here an interpretation of these clusters by applying a statistical analysis to independent semantic annotations

A Spot Stochastic Recovery Extension of the Gaussian Copula

The market evolution since the end of 2007 has been characterized by an increase of systemic risk and a high number of defaults. Realized recovery rates have been very dispersed and different from standard assumptions, while 60%-100% super-senior tranches on standard indices have started to trade with significant spread levels. This has triggered a growing interest for stochastic recovery modelling. This paper presents an extension to the standard Gaussian copula framework that introduces a consistent modelling of stochastic recovery. We choose to model directly the spot recovery, which allows to preserve time consistency, and compare this approach to the standard ones, defined in terms of recovery to maturity. Taking a specific form of the spot recovery function, we show that the model is flexible and tractable, and easy to calibrate to both individual credit spread curves and index tranche markets. Through practical numerical examples, we analyze specific model properties, focusing on default risk.stochastic recovery, CDO, correlation smile, base correlation, copula, factor model, default risk

National influences inside the ECB: an assessment from central bankers' statements

This paper aims at discovering the national influences inside the Governing Council of the ECB for setting interest rates. We use a textual analysis of national newspaper articles related to each European central banker to analyze their expressed preferences. We proceed to a cluster analysis with the results obtained and fi nd that there were favorable conditions for the emergence of coalitions of central bankers according to their common economic concerns. Next, a Taylor rule of each coalition is estimated as well as their desired interest rate. Finally, we assess the contribution of each coalition in setting the interest rate fixed by the ECB. Our results show that the identi fied coalitions have an influence inside the Governing Council for setting the interest rate, that is approximately equal to their respective economic weight in the euro area

The Impact of Behavioral Biases on the Process of Decision-making

Reda Salah Bennani's poster on behavioral biases in decision-making

Abderrahmane Youssoufi: an embodiment of the mutations of the Moroccan left

At first sight, becoming the Prime Minister of Hassan II after having been considered, a few decades earlier, to be ‘the foreign minister of the resistance and the plotters’ against the monarchy might constitute a spectacular turnaround in a political career. In fact, this reversal was part of a process that was both slow and discontinuous, with bifurcations, and moments of fluidity and uncertainty. By examining oral sources from an interactionist perspective, this article shows that Youssoufi is the paragon of a segment of the nationalist elites, and that his trajectory embodies the transformations in the relations between a part of the Moroccan left and the monarchy. It stresses that individual and collective destiny cannot be reduced to explanations in terms of ‘domestication’, and that not everything was played out beforehand and once and for all. These strategic changes were intrinsically linked to variations in the resources available to the actors, their perceptions of their environment and the dynamics at work within it, their appreciation of the cards they could play, and so on. More specifically, if the left epitomised by Youssoufi benefited from ‘reputational capital’ acquired through repression, it never managed to accumulate the organisational capital of the mass parties. After bidding a regretful farewell to the revolution, the Maquis, and even the putsch, its leaders chose the only option they perceived as available to them: institutional participation