arXiv · arXiv · 2026
Persistent shifts in term-structure dynamics undermine the stability of single-regime models in long samples. We develop an arbitrage-free regime-switching generalized CIR (RS-GCIR) model that jointly prices the Chinese government bond (CGB) curve and corporate bond curves. To capture the systematic transmission from interest-rate conditions to credit spreads, we structure the model into two blocks and price corporat…
Maochun Xu, Yunqi Liang, Yi Hong
arXiv · arXiv · 2026
Hit ratio is a common service metric for electronic corporate bond market making, but raw hit-ratio targets can be economically misleading when client flow has heterogeneous adverse-selection content. This paper extends a stochastic-control framework for OTC bond RFQ market making with hit-ratio constraints by replacing raw hit ratio with a residual-quality-adjusted hit ratio. The key modelling distinction is that ad…
Bouna Niang
arXiv · arXiv · 2025
We investigate the application of quantum cognition machine learning (QCML), a novel paradigm for both supervised and unsupervised learning tasks rooted in the mathematical formalism of quantum theory, to distance metric learning in corporate bond markets. Compared to equities, corporate bonds are relatively illiquid and both trade and quote data in these securities are relatively sparse. Thus, a measure of distance/…
Joshua Rosaler, Luca Candelori, Vahagn Kirakosyan, Kharen Musaelian, Ryan Samson
arXiv · arXiv · 2025
This paper extends an option-theoretic approach to estimate liquidity spreads for corporate bonds. Inspired by Longstaff's equity market framework and subsequent work by Koziol and Sauerbier on risk-free zero-coupon bonds, the model views liquidity as a look-back option. The model accounts for the interplay of risk-free rate volatility and credit risk. A numerical analysis highlights the impact of these factors on th…
Pietro Rossi, Paolo Spezzati, Riccardo Tedeschi
arXiv · arXiv · 2024
The over-the-counter (OTC) government bond markets are characterised by their bilateral trading structures, which pose unique challenges to understanding and ensuring market stability and liquidity. In this paper, we develop a bespoke ABM that simulates market-maker interactions within a stylised government bond market. The model focuses on the dynamics of liquidity and stability in the secondary trading of governmen…
Alicia Vidler, Toby Walsh
arXiv · arXiv · 2024
We present a new type of game, the Liquidity Game. We draw inspiration from the UK government bond market and apply game theoretic approaches to its analysis. In Liquidity Games, market participants (agents) use non-cooperative games where the players' utility is directly defined by the liquidity of the game itself, offering a paradigm shift in our understanding of market dynamics. Each player's utility is intricatel…
Alicia Vidler, Toby Walsh
arXiv · arXiv · 2023
Constructing an accurate yield curve is essential for evaluating financial instruments and analyzing market trends in the bond market. However, in the case of the Burundian sovereign bond market, the presence of missing data poses a significant challenge to accurately constructing the yield curve. In this paper, we explore the limitations and data availability constraints specific to the Burundian sovereign market an…
Irène Irakoze, Rédempteur Ntawiratsa, David Niyukuri
arXiv · arXiv · 2022
This paper examines the effect of the political network of Chinese municipal leaders on the pricing of municipal corporate bonds. Using municipal leaders' working experience to measure the political network, we find that this network reduces the bond issuance yield spreads by improving the credit ratings of the issuer, the local government financing vehicle. The relationship between political networks and issuance yi…
Jaehyuk Choi, Lei Lu, Heungju Park, Sungbin Sohn
arXiv · arXiv · 2021
This paper investigates the callable convertible bond problem in the presence of a liquidity constraint modelled by Poisson signals. We assume that neither the bondholder nor the firm has absolute priority when they stop the game simultaneously, but instead, a proportion $m\in[0,1]$ of the bond is converted to the firm's stock and the rest is called by the firm. The paper thus generalizes the special case studied in …
David Hobson, Gechun Liang, Edward Wang
arXiv · arXiv · 2021
Trading in Over-The-Counter (OTC) markets is facilitated by broker-dealers, in comparison to public exchanges, e.g., the New York Stock Exchange (NYSE). Dealers play an important role in stabilizing prices and providing liquidity in OTC markets. We apply machine learning methods to model and predict the trading behavior of OTC dealers for US corporate bonds. We create sequences of daily historical transaction reports…
Yusen Lin, Jinming Xue, Louiqa Raschid
arXiv · arXiv · 2019
This paper analyses the Chinese Sovereign bond yield to find out the principal factors affecting the term structure of interest rate changes. We apply Principal Component Analysis (PCA) on our data consisting of the Chinese Sovereign bond from January 2002 till May 2018 with the different yield to maturity. Then we will discuss the multi-factor immunization model (method on hedging market risk) on a bond portfolio.
Lim Tze Yee, Tony She, Kezia Irene
arXiv · arXiv · 2019
The electronic platform has been increasingly popular for executing large corporate bond orders by asset managers, who in turn have to assess the quality of their executions via Transaction Cost Analysis (TCA). One of the challenges in TCA is to build a realistic benchmark for the expected transaction cost and to characterize the price impact of each individual trade with given bond characteristics and market conditi…
Xin Guo, Charles-Albert Lehalle, Renyuan Xu
arXiv · arXiv · 2019
We propose an option approach for pricing bond illiquidity that is reminiscent of the celebrated work of Longstaff (1995) on the non-marketability of some non-dividend-paying shares in IPOs. This approach describes a quite common situation in the fixed income market: it is rather usual to find issuers that, besides liquid benchmark bonds, issue some other bonds that either are placed to a small number of investors in…
Roberto Baviera, Aldo Nassigh, Emanuele Nastasi
arXiv · arXiv · 2015
For the last two decades, most financial markets have undergone an evolution toward electronification. The market for corporate bonds is one of the last major financial markets to follow this unavoidable path. Traditionally quote-driven i.e., dealer-driven) rather than order-driven, the market for corporate bonds is still mainly dominated by voice trading, but a lot of electronic platforms have emerged. These electro…
Jean-David Fermanian, Olivier Guéant, Jiang Pu
arXiv · arXiv · 2009
In the third part of this series we introduce consistent relative value measures for CDS-Bond basis trades using the bond-implied CDS term structure derived from fitted survival rate curves. We explain why this measure is better than the traditionally used Z-spread or Libor OAS and offer simplified hedging and trading strategies which take advantage of the relative value across the entire range of maturities of cash …
Arthur M. Berd, Roy Mashal, Peili Wang
arXiv · arXiv · 2007
This paper develops a two-dimensional structural framework for valuing credit default swaps and corporate bonds in the presence of default contagion. Modelling the values of related firms as correlated geometric Brownian motions with exponential default barriers, analytical formulae are obtained for both credit default swap spreads and corporate bond yields. The credit dependence structure is influenced by both a lon…
Helen Haworth, Christoph Reisinger, William Shaw
arXiv · arXiv · 2025
Financial bond yield forecasting is challenging due to data scarcity, nonlinear macroeconomic dependencies, and evolving market conditions. In this paper, we propose a novel framework that leverages Causal Generative Adversarial Networks (CausalGANs) and Soft Actor-Critic (SAC) reinforcement learning (RL) to generate high-fidelity synthetic bond yield data for four major bond categories (AAA, BAA, US10Y, Junk). By in…
Jaskaran Singh Walia, Aarush Sinha, Naman Saraswat, Srinitish Srinivasan, Srihari Unnikrishnan
arXiv · arXiv · 2018
Emerging market hard-currency bonds are an asset class of growing importance, and contain exposure to an EM sovereign and the underlying industry. The authors investigate how to model this as a modification of the well-known first-to-default (FtD) basket, using the structural model, and find the approach feasible.
Richard Martin, Yao Ma