Hong Kong's Linked Exchange Rate system (LERS) has been in operation since 1983 during which time many other fixed exchange rate systems have succumbed to shocks and/or speculative attacks. This paper investigates how market participants assessed changes made to the LERS by using the tools of...

The square root constant elasticity of variance (CEV) process has been paid little attention in previous research on valuation of barrier options. In this paper we derive analytical option pricing formulae of up-and-out options with this process using the eigenfunction expansion technique. We...

This paper provides a method for pricing options in the constant elasticity of variance (CEV) model environment using the Lie-algebraic technique when the model parameters are time-dependent. Analytical solutions for the option values incorporating time-dependent model parameters are obtained in...

In this paper, we comment on the paper quot;Pricing Double Barrier Options using Laplace Transformsquot; by Antoon Pelsser. We illustrate that the same solutions of double barrier option values in terms of Fourier sine series can be obtained by using both Laplace transform and the method of...

The theoretical prediction on targeted exchange rates expects mean reversion of the exchange rates. There is some empirical evidence to support this prediction. This paper presents a model for valuing European foreign exchange options in which the forward foreign exchange rate follows a...

This article develops a barrier option pricing model in which the exchange rate follows a mean‐reverting lognormal process. The corresponding closed‐form solutions for the barrier options with time‐dependent barriers are derived. The numerical results show that barrier option values and...

Empirical findings and theoretical studies suggest that firms adjust towards time-varying target leverage ratios. This paper studies the performances of the default probabilities generated from two stationaryleverage models with time-dependent and constant target ratios respectively. The...

Based upon the Wei-Norman theorem, this paper presents a Lie-algebraic technique for the pricing of financial derivatives with time-dependent parameters. By exploiting the dynamical symmetry of the pricing partial differential equations of the financial derivatives, the new method enables us to...

In this paper we present a simple and easy-to-use method for computing accurate estimates (in closed form) of Black-Scholes barrier option prices with time-dependent parameters. This new approach is also able to provide tight upper and lower bounds (in closed form) for the exact barrier option...

This paper studies the discriminatory power and calibration quality of the structural credit risk models under the ¡§exogenous default boundary¡¨ approach including those proposed by Longstaff and Schwartz (1995) and Collin-Dufresne and Goldstein (2001), and ¡§endogenous default...