This paper considers pricing of European-style vulnerable options under the Heston stochastic volatility and stochastic interest rate model in which the mean-reversion levels of both variance and interest rate processes are modulated by a continuous-time Markov process with a finite state space....

Regime-switching Levy processes integrate jump-diffusions and Markov regime-switchings. When they are coalesced with nonlinear partial differential equations of second order, the technique of viscosity solutions proves critical in the resolution process. However, applications to carbon policies...

A family of Exponentially Fitted Block Backward Differentiation Formulas (EFBBDFs) whose coefficients depend on a parameter and step-size is developed and implemented on the Black-Scholes partial differential equation (PDE) for the valuation of options on a non-dividend-paying stock. Specific...

Estimation of volatility is important for many financial applications. The most common methods are based on a time series analysis, either sampling prices at regular intervals or using extreme values from within the time intervals. We examine an alternative, where we use the exit times from a...

This paper offers a Bayesian decision-theoretic approach to policy evaluation in rational expectation models. First, we show how to correctly assess and rank simple policy rules under the welfare loss minimization criterion in the presence of uncertainty about the model’s structural...