Zvi Wiener - Academia.edu (original) (raw)

Papers by Zvi Wiener

Research paper thumbnail of Bridging the GAAP

WORLD SCIENTIFIC eBooks, Mar 1, 2012

Bridging the GAAP: Recent Advances in Finance and Accounting lies at the intersection of the two ... more Bridging the GAAP: Recent Advances in Finance and Accounting lies at the intersection of the two disciplines. The readings in this volume bridge the gap between finance and accounting by looking at diverse topics in accounting and finance and by providing interesting points of view regarding their interface. Most of the chapters concentrate on the topic of fair value accounting and on the extent to which accounting numbers mirror the financial situation of the firm. This book combines new developments in the areas of theoretical and empirical finance and accounting, and emphasizes the convergence of these two disciplines to better serve researchers, investors and the general public. The papers contained in this volume will help scholars, practitioners and investors better understand the similarities and differences between these two important fields of study.

Research paper thumbnail of Options — 45 Years since the Publication of the Black–Scholes–Merton Model

WORLD SCIENTIFIC eBooks, Mar 28, 2022

Research paper thumbnail of Algorithms behind Term Structure Models of Interest Rates II: The Hull-White Trinomial Tree of Interest Rates

Social Science Research Network, 2001

In this article we implement the well-known Ho-Lee Model of the term structure of interest rates ... more In this article we implement the well-known Ho-Lee Model of the term structure of interest rates and describe the algorithm behind this model. After a brief discussion of interest rates and bonds we construct a binomial tree and show how to replicate any fixed income type security. This allows us to value any interest rate contingent claim by means of the replicating portfolio. We also discuss the problem of negative interest rates arising in this model and show how to calibrate the model to an observed set of bond prices.

Research paper thumbnail of Financial Theory and Risk Modeling: Diverse Perspectives in Turbulent Times

The quarterly journal of finance, May 20, 2023

Research paper thumbnail of World Scientific Reference on Contingent Claims Analysis in Corporate Finance

World Scientific Publishing Company eBooks, Dec 16, 2015

Research paper thumbnail of Algorithms behind Term Structure Models of Interest Rates: I. Valuation and Hedging of Interest Rates Derivatives with the Ho-Lee Model

Social Science Research Network, 2001

In this article we implement the well-known Ho-Lee Model of the term structure of interest rates ... more In this article we implement the well-known Ho-Lee Model of the term structure of interest rates and describe the algorithm behind this model. After a brief discussion of interest rates and bonds we construct a binomial tree and show how to replicate any fixed income type security. This allows us to value any interest rate contingent claim by means of the replicating portfolio. We also discuss the problem of negative interest rates arising in this model and show how to calibrate the model to an observed set of bond prices.

Research paper thumbnail of Instability of a non-isolated equilibrium

Archive for Rational Mechanics and Analysis, 1992

In this paper non-isolated equilibria of conservative mechanical systems are studied. Under mild ... more In this paper non-isolated equilibria of conservative mechanical systems are studied. Under mild non-degeneracy conditions such equilibria are shown to be unstable in the sense of Liapunov.

Research paper thumbnail of Term structure of interest rate

Research paper thumbnail of Comment on ‘Non-Linear Value-at-Risk’

Review of Finance, Aug 1, 1999

Research paper thumbnail of From formal numerical solutions of elliptic PDE's to the true ones

Mathematics of Computation, Aug 19, 1999

We propose a discretization scheme for a numerical solution of elliptic PDE's, based on local rep... more We propose a discretization scheme for a numerical solution of elliptic PDE's, based on local representation of functions, by their Taylor polynomials (jets). This scheme utilizes jet calculus to provide a very high order of accuracy for a relatively small number of unknowns involved.

Research paper thumbnail of Prospect Theory and Utility Theory: Temporary Versus Permanent Attitude towards Risk

Social Science Research Network, 2013

Prospect Theory (PT), which relies on subjects' behavior as observed in laboratory experiments co... more Prospect Theory (PT), which relies on subjects' behavior as observed in laboratory experiments contradicts the behavior predicted by the Expected Utility (EU) paradigm. In this study, we introduce the concept of Temporary Attitude Towards Risk (TATR) and Permanent Attitude Towards Risk (PATR). Using these concepts, we build a model that merges both the PT and the EU paradigms. The TATR and PATR concepts explain recent experimental findings and the observed stock price overreaction. We relate the properties of PT to some well-known financial and economic results. We show that a positive risk premium with decreasing absolute risk aversion (DARA) can be consistent with the S-shaped value function used in PT. Finally, we introduce the Prospect Stochastic Dominance (PSD) rule for partial ordering of uncertain prospects for all S-shaped value functions.

Research paper thumbnail of Credit Risk Spreads in Local and Foreign Currencies

Social Science Research Network, 2009

This Working Paper should not be reported as representing the views of the IMF.

Research paper thumbnail of The estimation of nominal and real yield curves from government bonds in Israel

The Journal of Risk Finance, Oct 1, 2006

We develop and test a mathematical method of deriving zero yield curve from market prices of gove... more We develop and test a mathematical method of deriving zero yield curve from market prices of government bonds. The method is based on a forward curve approximated by a linear (or piecewise constant) spline and should be applicable even for markets with low liquidity. The best fitting curve is derived by minimizing the penalty function. The penalty is defined as a sum of squared price discrepancies (theoretical curve based price minus market closing price) weighted by trade volume and an additional penalty for non-smoothness of the yield curve. We apply this method to both nominal and CPI linked bonds traded in Israel (some segments of these markets have low liquidity). The resulting two yield curves are used for derivation of market expected inflation rate. The main problems are low liquidity of some bonds and imperfect linkage to inflation in the CPI linked market. Usage of forward curves as the state space for the minimization problem leads to a stable solution that fits the data very well and can be used for calculating forward rates.

Research paper thumbnail of An investigation of cheapest-to-deliver on Treasury bond futures contracts

Journal of Computational Finance, 1999

It is commonly believed that the cheapest-to-deliver bond on a Treasury bond futures contract has... more It is commonly believed that the cheapest-to-deliver bond on a Treasury bond futures contract has extremal duration. The authors show that this is not always true. There is an easy rule for cheapest-to-deliver bonds which involves choosing a combination of extremal coupons and maturities. This rule is derived for a¯at term structure and its extension to a non¯at term structure is given.

Research paper thumbnail of Prospect theory and utility theory: Temporary versus permanent attitude toward risk

Journal of Economics and Business, Jul 1, 2013

Prospect theory (PT), which relies on subjects' behavior as observed in laboratory experiments, c... more Prospect theory (PT), which relies on subjects' behavior as observed in laboratory experiments, contradicts the behavior predicted by the Expected Utility (EU) paradigm. Having wealth of 100,000orhavingwealthof100,000 or having wealth of 100,000orhavingwealthof90,000 and winning $10,000 in a lottery is the same by EU paradigm but not the same by Markowitz (1952) and by PT (1979) which emphasizes the importance of change of wealth rather than total wealth on welfare. In this study, we resolve this contradiction by introducing the concept of temporary attitude toward risk (TATR) and permanent attitude toward risk (PATR). Using these concepts, we build a model that merges both the PT and the EU paradigms. The TATR and PATR concepts explain recent experimental findings and the observed stock price overreaction. We show that a positive risk premium with decreasing absolute risk aversion (DARA) can be consistent with the S-shaped value function used in PT.

Research paper thumbnail of On the use of numeraire methods in option pricing

Journal of Derivatives, 2002

Research paper thumbnail of Investment in Financial Structured Products from Rational and Behavioral Choice Perspectives

Social Science Research Network, 2012

Research paper thumbnail of Dynamic hedging strategies

Research paper thumbnail of Binomial term structure models

In this article, the authors develop several discrete versions of term structure models and study... more In this article, the authors develop several discrete versions of term structure models and study their major properties. We demonstrate how to program and calibrate such models as Black-Derman-Toy and Black-Karasinski. In addition we provide some simple methods for pricing options on interest rates. by Simon Benninga and Zvi Wiener T he term structure models discussed in our previous article ("Term Structure of Interest Rates," MiER Vol. 7, No. 3) such as the [Vasicek 1978] or the [Cox-Ingersoll-Ross 1985] model may not match the current term structure. The Black-Derman-Toy (BDT) and Black-Karasinksi models discussed in this article are important examples of models in which the current term structure can always be replicated.

Research paper thumbnail of Value-at-risk (VAR)

Research paper thumbnail of Bridging the GAAP

WORLD SCIENTIFIC eBooks, Mar 1, 2012

Bridging the GAAP: Recent Advances in Finance and Accounting lies at the intersection of the two ... more Bridging the GAAP: Recent Advances in Finance and Accounting lies at the intersection of the two disciplines. The readings in this volume bridge the gap between finance and accounting by looking at diverse topics in accounting and finance and by providing interesting points of view regarding their interface. Most of the chapters concentrate on the topic of fair value accounting and on the extent to which accounting numbers mirror the financial situation of the firm. This book combines new developments in the areas of theoretical and empirical finance and accounting, and emphasizes the convergence of these two disciplines to better serve researchers, investors and the general public. The papers contained in this volume will help scholars, practitioners and investors better understand the similarities and differences between these two important fields of study.

Research paper thumbnail of Options — 45 Years since the Publication of the Black–Scholes–Merton Model

WORLD SCIENTIFIC eBooks, Mar 28, 2022

Research paper thumbnail of Algorithms behind Term Structure Models of Interest Rates II: The Hull-White Trinomial Tree of Interest Rates

Social Science Research Network, 2001

In this article we implement the well-known Ho-Lee Model of the term structure of interest rates ... more In this article we implement the well-known Ho-Lee Model of the term structure of interest rates and describe the algorithm behind this model. After a brief discussion of interest rates and bonds we construct a binomial tree and show how to replicate any fixed income type security. This allows us to value any interest rate contingent claim by means of the replicating portfolio. We also discuss the problem of negative interest rates arising in this model and show how to calibrate the model to an observed set of bond prices.

Research paper thumbnail of Financial Theory and Risk Modeling: Diverse Perspectives in Turbulent Times

The quarterly journal of finance, May 20, 2023

Research paper thumbnail of World Scientific Reference on Contingent Claims Analysis in Corporate Finance

World Scientific Publishing Company eBooks, Dec 16, 2015

Research paper thumbnail of Algorithms behind Term Structure Models of Interest Rates: I. Valuation and Hedging of Interest Rates Derivatives with the Ho-Lee Model

Social Science Research Network, 2001

In this article we implement the well-known Ho-Lee Model of the term structure of interest rates ... more In this article we implement the well-known Ho-Lee Model of the term structure of interest rates and describe the algorithm behind this model. After a brief discussion of interest rates and bonds we construct a binomial tree and show how to replicate any fixed income type security. This allows us to value any interest rate contingent claim by means of the replicating portfolio. We also discuss the problem of negative interest rates arising in this model and show how to calibrate the model to an observed set of bond prices.

Research paper thumbnail of Instability of a non-isolated equilibrium

Archive for Rational Mechanics and Analysis, 1992

In this paper non-isolated equilibria of conservative mechanical systems are studied. Under mild ... more In this paper non-isolated equilibria of conservative mechanical systems are studied. Under mild non-degeneracy conditions such equilibria are shown to be unstable in the sense of Liapunov.

Research paper thumbnail of Term structure of interest rate

Research paper thumbnail of Comment on ‘Non-Linear Value-at-Risk’

Review of Finance, Aug 1, 1999

Research paper thumbnail of From formal numerical solutions of elliptic PDE's to the true ones

Mathematics of Computation, Aug 19, 1999

We propose a discretization scheme for a numerical solution of elliptic PDE's, based on local rep... more We propose a discretization scheme for a numerical solution of elliptic PDE's, based on local representation of functions, by their Taylor polynomials (jets). This scheme utilizes jet calculus to provide a very high order of accuracy for a relatively small number of unknowns involved.

Research paper thumbnail of Prospect Theory and Utility Theory: Temporary Versus Permanent Attitude towards Risk

Social Science Research Network, 2013

Prospect Theory (PT), which relies on subjects' behavior as observed in laboratory experiments co... more Prospect Theory (PT), which relies on subjects' behavior as observed in laboratory experiments contradicts the behavior predicted by the Expected Utility (EU) paradigm. In this study, we introduce the concept of Temporary Attitude Towards Risk (TATR) and Permanent Attitude Towards Risk (PATR). Using these concepts, we build a model that merges both the PT and the EU paradigms. The TATR and PATR concepts explain recent experimental findings and the observed stock price overreaction. We relate the properties of PT to some well-known financial and economic results. We show that a positive risk premium with decreasing absolute risk aversion (DARA) can be consistent with the S-shaped value function used in PT. Finally, we introduce the Prospect Stochastic Dominance (PSD) rule for partial ordering of uncertain prospects for all S-shaped value functions.

Research paper thumbnail of Credit Risk Spreads in Local and Foreign Currencies

Social Science Research Network, 2009

This Working Paper should not be reported as representing the views of the IMF.

Research paper thumbnail of The estimation of nominal and real yield curves from government bonds in Israel

The Journal of Risk Finance, Oct 1, 2006

We develop and test a mathematical method of deriving zero yield curve from market prices of gove... more We develop and test a mathematical method of deriving zero yield curve from market prices of government bonds. The method is based on a forward curve approximated by a linear (or piecewise constant) spline and should be applicable even for markets with low liquidity. The best fitting curve is derived by minimizing the penalty function. The penalty is defined as a sum of squared price discrepancies (theoretical curve based price minus market closing price) weighted by trade volume and an additional penalty for non-smoothness of the yield curve. We apply this method to both nominal and CPI linked bonds traded in Israel (some segments of these markets have low liquidity). The resulting two yield curves are used for derivation of market expected inflation rate. The main problems are low liquidity of some bonds and imperfect linkage to inflation in the CPI linked market. Usage of forward curves as the state space for the minimization problem leads to a stable solution that fits the data very well and can be used for calculating forward rates.

Research paper thumbnail of An investigation of cheapest-to-deliver on Treasury bond futures contracts

Journal of Computational Finance, 1999

It is commonly believed that the cheapest-to-deliver bond on a Treasury bond futures contract has... more It is commonly believed that the cheapest-to-deliver bond on a Treasury bond futures contract has extremal duration. The authors show that this is not always true. There is an easy rule for cheapest-to-deliver bonds which involves choosing a combination of extremal coupons and maturities. This rule is derived for a¯at term structure and its extension to a non¯at term structure is given.

Research paper thumbnail of Prospect theory and utility theory: Temporary versus permanent attitude toward risk

Journal of Economics and Business, Jul 1, 2013

Prospect theory (PT), which relies on subjects' behavior as observed in laboratory experiments, c... more Prospect theory (PT), which relies on subjects' behavior as observed in laboratory experiments, contradicts the behavior predicted by the Expected Utility (EU) paradigm. Having wealth of 100,000orhavingwealthof100,000 or having wealth of 100,000orhavingwealthof90,000 and winning $10,000 in a lottery is the same by EU paradigm but not the same by Markowitz (1952) and by PT (1979) which emphasizes the importance of change of wealth rather than total wealth on welfare. In this study, we resolve this contradiction by introducing the concept of temporary attitude toward risk (TATR) and permanent attitude toward risk (PATR). Using these concepts, we build a model that merges both the PT and the EU paradigms. The TATR and PATR concepts explain recent experimental findings and the observed stock price overreaction. We show that a positive risk premium with decreasing absolute risk aversion (DARA) can be consistent with the S-shaped value function used in PT.

Research paper thumbnail of On the use of numeraire methods in option pricing

Journal of Derivatives, 2002

Research paper thumbnail of Investment in Financial Structured Products from Rational and Behavioral Choice Perspectives

Social Science Research Network, 2012

Research paper thumbnail of Dynamic hedging strategies

Research paper thumbnail of Binomial term structure models

In this article, the authors develop several discrete versions of term structure models and study... more In this article, the authors develop several discrete versions of term structure models and study their major properties. We demonstrate how to program and calibrate such models as Black-Derman-Toy and Black-Karasinski. In addition we provide some simple methods for pricing options on interest rates. by Simon Benninga and Zvi Wiener T he term structure models discussed in our previous article ("Term Structure of Interest Rates," MiER Vol. 7, No. 3) such as the [Vasicek 1978] or the [Cox-Ingersoll-Ross 1985] model may not match the current term structure. The Black-Derman-Toy (BDT) and Black-Karasinksi models discussed in this article are important examples of models in which the current term structure can always be replicated.

Research paper thumbnail of Value-at-risk (VAR)