We propose a novel time-changed Lévy LIBOR (London Interbank Offered Rate) market model for jointly pricing of caps and swaptions. The time changes are split into three components. The first component allows matching the volatility term structure, the second generates stochastic volatility, and...

While the proportional hazard model is recognized to be statistically meaningful for analyzing and estimating financial event risks, the existing literature that analytically deals with the valuation problems is very limited. In this paper, adopting the proportional hazard model in continuous...

In this article, we solve the variance-optimal hedging problem in stochastic volatility (SV) models based on time-changed Levy processes, that is, in the setup of Carr et al. (2003). The solution is derived using results for general affine models in the companion article [Kallsen and Pauwels...

In reduced form default models, the instantaneous default intensity is the classical modelling object. Survival probabilities are then given by the Laplace transform of the cumulative hazard defined as the integrated intensity process. Instead, recent literature tends to specify the cumulative...

In reduced form default models, the instantaneous default intensity is classically the modeling object. Survival probabilities are then given by the Laplace transform of the cumulative hazard defined as the integrated intensity process. Instead, recent literature has shown a tendency towards...