We propose a method to estimate the cost of debt in a continuous-time framework with an infinite time horizon. The approach builds on the class of well-known earnings before interest and taxes (EBIT)-based models. It extends other approaches based on option-pricing theory with a finite...

Hedging down-and-out puts (and up-and-out calls), where the maximum payoff is reached just before a barrier is hit that would render the claim worthless afterwards, is challenging. All hedging methods potentially lead to large errors when the underlying is already close to the barrier and the...