In this paper, we establish a market model for the term structure of forward inflation rates based on the risk-neutral dynamics of nominal and real zero-coupon bonds. Under the market model, we can price inflation caplets as well as inflation swaptions with a formula similar to the Black's...

Gulisashvili et al. [Quant. Finance, 2018, 18(10), 1753-1765] provide a small-time asymptotics for the mass at zero under the uncorrelated stochastic-alpha-beta-rho (SABR) model by approximating the integrated variance with a moment-matched lognormal distribution. We improve the accuracy of the...

This study presents new analytic approximations of the stochastic-alpha-beta-rho (SABR) model. Unlike existing studies that focus on the equivalent Black-Scholes (BS) volatility, we instead derive the equivalent constant-elasticity-of-variance (CEV) volatility. Our approach effectively reduces...

In this article, we consider replication pricing of derivatives that are partially collateralized by cash. We let the issuer replicate the derivatives payout using shares and cash, and let the buyer replicate the the loss given the counterparty default using credit default swaps. The costs of...

In derivatives pricing, funding costs and counterparty credit risks are intimately related and should be treated consistently. Working under the framework of arbitrage pricing, Lixin Wu shows a proper way to formulate and evaluate the adjustments to the risk-free valuation of a derivative for...

In this paper, we establish a market model for the term structure of forward inflation rates based on the risk-neutral dynamics of nominal and real zero-coupon bonds. Under the market model, we can price inflation caplets as well as inflation swaptions with a formula similar to the Black's...

In this paper we study a LIBOR market model with a volatility multiplier, which follows a square-root process. This model captures downward volatility skews through using negative correlations between forward rates and the multiplier. Approximate pricing formula is developed for swaptions, and...

In existing pricing theories, pricing of single-name credit default swaps and their options makes no reference of the market of defaultable bonds. This situation can cause price inefficiency and even generate arbitrage opportunities across the markets. In this paper, we introduce a new theory...

In an incomplete market, option prices depend on investors' utility functions. In this paper, we establish the connection between risk preference and optimal hedging strategy, and price options according to the principle of utility indifference. Taking the exponential utility function, we...

We provide an alternative method for analysis of multifractal properties of time series. The new approach takes into account the behaviour of the whole multifractal profile of the generalized Hurst exponent $h(q)$ for all moment orders $q$, not limited only to the edge values of $h(q)$...