In this paper, we present closed-forms for the valuation of the barrier option whose underlying is exchange rate under the multi-dimensional Levy process, including stochastic interest rates and stochastic assets. Instantaneous forward interest rates are assumed under the Heath et al. [1992....

Weather derivatives provide a tool for weather risk management, and the markets for these exotic financial products are gradually emerging in size and importance. This unique monograph presents a unified approach to the modeling and analysis of such weather derivatives, including financial...

We derive discrete markov chain approximations for continuous state equilibrium term structure models. The states and transition probabilities of the markov chain are chosen effciently according to a quadrature rule as in Tauchen and Hussey (1991). Quadrature provides a simple yet method which...

We show that Australian options are equivalent to fixed or floating strike Asian options and consequently that by studying Asian options from the Australian perspective and vice versa, much can be gained. One specific application of this “Australian approach” leads to a natural dimension...

We derive general properties of two-factor models of the term structure of interest rates and, in particular, the process for futures prices and rates. Then, as a special case, we derive a no-arbitrage model of the term structure in which any two futures rates act as factors. In this model, the...

We build a no-arbitrage model of the term structure of interest rates using two stochastic factors, the short-term interest rate and the premium of the futures rate over the short-term interest rate. The model provides an extension of the lognormal interest rate model of Black and Karasinski...

The pricing kernel, or the state-price density, which relates future cash flows to today's price, is the fundamental building block of modern asset pricing theory. In abstract, the state-price density process can be regarded as a positive supermartingale, or, under some regularity conditions, a...

This paper examines the behaviour of foreign exchange reserves, when a government defends an exchange rate target zone using Minimal Marginal Intervention. Reserve depletion defending a single exchange rate barrier is first modelled as the maximum or minimum value of the path of an unregulated...

This paper provides a short introduction to the topic of target zone exchange rate option pricing. Models covered include: Black-Scholes equation with derivation, European Call on a stock option, Garman-Kohlhagen model for an option on a free-floating exchange rate, Dumas Jennergren and Naslund...

This paper focuses on the joint dynamics of yield spreads derived from government bonds issued by member states of the European Monetary Union (EMU). A descriptive analysis shows that there are substantial and volatile spreads between zero coupon yields of EMU member countries and German Bund...