In the absence of a universally accepted procedure for the credit valuation adjustment (CVA) calculation, we compare a number of different bilateral counterparty valuation adjustment (BVA) formulas. First we investigate the impact of the choice of the closeout convention used in the formulas....

We present the derivation of the self-financing condition used in a derivative pricing framework with funding, collateral and discounting. This is done in a way that clarifies the structure of the relevant funding accounts. This clarification is achieved by properly distinguishing between price...

We use the expectation of the range of an arithmetic Brownian motion and the method of moments on the daily high, low, opening, and closing prices to estimate the volatility of the stock price. This novel theoretical approach results in an estimator that is genuinely range-based on daily...

Reducing the number of factors in a model by reducing the rank of a correlation matrix is a problem that often arises in finance, for instance in pricing interest rate derivatives with Libor market models. A simple iterative algorithm for correlation rank reduction is introduced, the eigenvalue...

We consider the distributional difference in forward swap rates from the LIBOR market model (LFM) and the swap market model (LSM), the two fundamental market models for interest-rate derivatives. We explain how the Kullback-Leibler information (KLI) can be used to measure the distance of a given...

In this paper we investigate implied volatility patterns in the Shifted Square Root Diffusion (SSRD) model as functions of the model parameters. We begin by recalling the Credit Default Swap (CDS) options market model that is consistent with a market Black-like formula, thus introducing a notion...