Prior literature indicates that quadratic models and the Black-Karasinski model are very promising for CDS pricing. This paper extends these models and the Black J. Finance 1995, 50, 1371-1376 model ...for pricing sovereign CDS's. For all 10 sovereigns in the sample quadratic models best fit CDS spreads in-sample, and a four factor quadratic model can account for the joint effects on CDS spreads of default risk, default loss risk and liquidity risk with no restriction to factors correlation. Liquidity risk appears to affect sovereign CDS spreads. However, quadratic models tend to over-fit some CDS maturities at the expense of other maturities, while the BK model is particularly immune from this tendency. The Black model seems preferable because its out-of-sample performance in the time series dimension is the best.
This paper tests affine, quadratic and Black-type Gaussian models on Euro area triple A Government bond yields for maturities up to 30 years. Quadratic Gaussian models beat affine Gaussian models ...both in-sample and out-of-sample. A Black-type model best fits the shortest maturities and the extremely low yields since 2013, but worst fits the longest maturities. Even for quadratic models we can infer the latent factors from some yields observed without errors, which makes quasi-maximum likelihood (QML) estimation feasible. New specifications of quadratic models fit the longest maturities better than does the 'classic' specification of Ahn et al. 2002. 'Quadratic Term Structure Models: Theory and Evidence.' The Review of Financial Studies 15 (1): 243-288, but the opposite is true for the shortest maturities. These new specifications are more suitable to QML estimation. Overall quadratic models seem preferable to affine Gaussian models, because of superior empirical performance, and to Black-type models, because of superior tractability. This paper also proposes the vertical method of lines (MOL) to solve numerically partial differential equations (PDEs) for pricing bonds under multiple non-independent stochastic factors. 'Splitting' the PDE drastically reduces computations. Vertical MOL can be considerably faster and more accurate than finite difference methods.
•Quadratic models and a Vasicek-type model best fit US and German Government yields.•The Black model can best fit the low US and German yields after 2008.•The Black–Karasinski model fits the low US ...yields after 2008 very well.•A new linear-quadratic model performs particularly well for German yields.•All models fit German yields better than US yields and worst fit one year yields.
Since the 2008 financial crisis Government bond yields in US, Europe and elsewhere have been historically low and challenged term structure models that cannot rule out negative yields. This paper uses US and German Government yields to test three factor Gaussian models that do and that do not rule out negative yields, namely affine models, quadratic models, extensions of the Black and Black–Karasinski models. Quadratic models and a Vasicek-type model best fit observed yields when the stochastic factors driving the short rate are correlated. However the Black–Karasinski model for the US and the Black model for both US and Germany can best fit yields when interest rates are lowest, i.e. after 2008, despite the restriction of independent factors driving the short rate. A new linear-quadratic model whereby the central tendency of the short rate is a non-negative quadratic function of Gaussian factors performs particularly well for German yields. All models fit German yields better than US yields. All models fit the one year yield worse than longer term yields.
This paper examines “Extended Black” term structure models (EBTSM), which are multi-factor extensions of the one-factor Black model (Black, F., 1995. Interest rates as options. Journal of Finance 50, ...1371–1376). EBTSM are not affected by the admissibility restrictions that plague canonical affine models. EBTSM encompass quadratic models, but unlike in quadratic models bond yields are sufficient statistics to infer the latent factors driving the short interest rate. EBTSM are amenable to econometric estimation despite the need to solve bond pricing equations through finite difference numerical methods. Estimation through the Iterated Extended Kalman filter reveals that a two-factor EBTSM fit well the observed cross section and time series of Japanese Government bond yields. A three-factor EBTSM is also proposed.
In this study, a model for predicting the electromigration lifetime of copper pillar bumps in ceramic packaging device was established. In order to determine the relevant parameters in the Black ...model of electromigration lifetime prediction, three current density levels, 2.5×10 4 A/cm 2 , 3×10 4 A/cm 2 and 3.5×10 4 A/cm 2 , were selected to conduct the electromigration tests on the Cu pillar bump in ceramic package samples at ambient temperatures of 125°C and 160°C respectively. SEM was used to observe the failure mode of bumps under different temperature and current density. The experiment of on-line monitoring of the bump resistance was used to monitor the resistance information in real time, and then obtain the electromigration lifetime of the copper pillar bumps under each load condition. By determining the current influence index n and the failure activation energy Q, this paper defines the black model of the electromigration lifetime prediction of the copper pillar bumps in the ceramic package.
Time domain severity factor (TDSF) Lopez‐Fernandez, Xose M.; Álvarez‐Mariño, Casimiro; Jacomo Ramos, Antonio J.M. ...
Compel,
01/2012, Volume:
31, Issue:
2
Journal Article
Peer reviewed
Purpose
This paper aims to present and define a factor to assess the severity supported along transformer windings when the transformer is subjected to a transient voltage waveform due a switching ...operation of a vacuum circuit breaker (VCB). This factor is identified as time domain severity factor (TDSF).
Design/methodology/approach
Since each of switching waveforms depend on the electrical interaction between transformer and the VCB, it implies that each of those combinations is characterized by a TDSF. To obtain the TDSF implies to manage two different models of the transformer under consideration. Firstly, a terminal model (black box model) of the transformer is built to compute the switching waveform at transformer terminals during VCB operation. Then, a detailed model (white box model) of the transformer is used to compute the internal transient voltage distribution along transformer windings.
Findings
A practical application of a power system consisting of a real transformer connected to a VCB is performed to show the sensibility of the TDSF coefficient.
Originality/value
Previous works found in the literature already consider the evaluation of the overvoltages in transformer associated to switching transient by coefficients, such as the frequency domain severity factor (FDSF). But this factor, as a global coefficient, could not assess the severity along windings to localize dielectrically weak points. Therefore, this paper overcomes this limitation proposing an alternative coefficient identified as time domain severity factor (TDSF).
The resolution of pure component spectra based on spectroscopic measurements from a reaction system is a challenging task for chemometric systems in the absence of a priori knowledge about the ...reaction components involved. A popular approach in the literature is based on constrained entropy minimization of the second-order derivative of the resolved pure component spectra. Using an analytical information theoretic framework, it can however be shown that minimization of this cost function is not sufficient to completely separate the underlying components from a set of mixture spectra. Instead, an augmented objective function derived from this analysis is proposed for complete minimization of the mutual information between separated components. The final optimization approach is further shown to be analog to independent component analysis (ICA), a signal processing technique successfully applied to biomedical and speech data to separate linear source mixtures in the absence of a priori information. The developed theoretical insights and proposed methodologies in this paper are illustrated in a simulation study on the separation of three component spectra based on absorbance data acquired from a first-order kinetic reaction system.
This study set out to draw a pricing comparison between two similar contracts in the South African derivatives market. These contracts, a normal option and a warrant on the same underlying stock are ...considered. The research shows that although the two derivatives are the same in all respects, the premiums differ substantially when priced with the Black-Scholes-Merton model. It is clear that pricing has to take place over the same calendar period due to market changes when comparing the instruments. The Black-Scholes-Merton model was the proposed model to be used. However, due to certain limitations the Modified Black model was used as the best suited model. It was shown that warrant contracts always have a higher implied volatility and a higher premium than a comparable normal option per share of the same stock. These results werecompared with similar studies conducted in the European markets
PDF
