The Market Models of the term structure of interest rates, in which forward LIBOR or forward swap rates are modelled to be lognormal under the forward probability measure of the corresponding maturity, are extended to a multicurrency setting. If lognormal dynamics are assumed for forward LIBOR...

If a probability distribution is sufficiently close to a normal distribution, its density can be approximated by a Gram/Charlier Series A expansion. In option pricing, this has been used to fit risk-neutral asset price distributions to the implied volatility smile, ensuring an arbitrage-free...

This paper analyses the relationship between the level of a return guarantee in an equity-linked pension scheme and the proportion of an investor’s contribution needed to finance this guarantee. Three types of schemes are considered: investment guarantee, contribution guarantee and surplus...

Alternative approaches to hedging swaptions are explored and tested by simulation. Hedging methods implied by the Balck swaption formula are compared with a lognormal forward LIBOR model approach encompassing all the relevant forward rates. The simulation is undertaken within the LIBOR model...

We analyse contracts which pay out a guaranteed minimum rate of return and a fraction of a positive excess rate, which is specified on the basis of a benchmark portfolio. These contracts are closely related to unit-linked life-insurance/savings plans products and can be considered as...

Models which postulate lognormal dynamics for interest rates which are compounded according to market conventions, such as forward LIBOR or forward swap rates, can be constructed initially in a discrete tenor framework. Interpolating interest interest rates between maturities in the discrete...

The Market Models of the term structure of interest rates, in which forward LIBOR or forward swap rates are modelled to be lognormal under the forward probability measure of the corresponding maturity, are extended to a multicurrency setting. If lognormal dynamics are assumed for forward swap...

The defaultable forward rate is modeled as a jump diffusion process within the Schonbucher (2000, 2003) general Heath, jarrow and Morton (1992) framework where jumps in the defaultable term structure f^d(t, T) cause jumps and defaults to the defaultable bond prices P^d(t, T). Within this...

The rapid pace of innovation in the market for credit risk has given rise to a liquid market in synthetic collateralised debt obligation (CDO) tranches on standardised portfolios. To the extent that tranche spreads depend on default dependence between different obligors in the reference...