In mortgage default modeling, many of the key variables, such as loan age, FICO score, Debt-to-Income Ratio (DTI), and Loan-to-House-Value Ratio (LTV), have nonlinear relationship with the target default/delinquency rates. To catch the nonlinearity in the response function, experienced modelers...

This paper addresses a situation wherein a retail investor must liquidate positions in her portfolio -- consisting of assets and European options on those assets -- to meet a margin call and wishes to do so with the least disruption to her portfolio. We address the problem by first generalizing...

This paper incorporates risk-based margin requirements into portfolio liquidation procedures in a novel fashion. The approach is analytic and, as a result, more efficient than conventional numerical liquidation methods. The margin requirement calculation is a self-contained inner optimization...

The presence of options in a portfolio fundamentally alters the portfolio's risk and return profiles when compared to an all equity portfolio. In this paper, we advocate modeling a risk-based criterion for optioned portfolio selection and rebalancing problems. The criterion is inspired by...

Prior research on structured products has demonstrated that equity-linked notes sold to retail investors in initial public offerings are typically issued at above their fair market value. A particular type of equity-linked note – reverse convertibles – embed down-and-in put options and offer...

Equity-Indexed Annuities (EIAs) are deferred annuities which accumulate value over time according to crediting formulas and realized equity index returns. We propose an efficient algorithm to value two popular crediting formulas found in EIAs - Annual Point-to-Point (APP) and Monthly...

Since first introduced in 2003, the number of autocallable structured products in the U.S. has increased exponentially. The autocall feature immediately converts the product if the reference asset's value rises above a pre-specified call price. Because an autocallable structured product matures...

This paper examines the properties and valuation of market-linked certificates of deposit (structured CDs). Structured CDs are similar to structured products – debt securities with payoffs linked to market indexes – but while structured products have garnered significant interest in both the...

We analyze and value dual directional structured products -- or simply dual directionals (DDs). We find that DDs can be broadly organized into two categories: single observation dual directionals (SODDs) and knock-out dual directionals (KODDs). We determine the appropriate option decomposition...