We provide an accurate approximation method for inverting an option price to the implied volatility under arithmetic Brownian motion. The maximum error in the volatility is in the order of 1e-10 of the given option price and much smaller for the near-the-money options. Thus our approximation can...

Convertible bonds and American warrants commonly contain the provision of the callable feature which allows the issuer to buy back the derivative at a predetermined recall price. Upon recall, by virtue of the early exercise privilege embedded in an American style derivative, the holder may...

In this paper we study a correlation-based LIBOR market model with a square-root volatility process. This model captures downward volatility skews through taking negative correlations between forward rates and the multiplier. An approximate pricing formula is developed for swaptions, and the...

This paper is concerned with option pricing in an incomplete market driven by a jump-diffusion process. We price options according to the principle of utility indifference. Our main contribution is an efficient multi-nomial tree method for computing the utility indifference prices for both...

In this article, we combine replication pricing with expectation pricing for derivative trades that are partially collateralized by cash. The derivatives are replicated by underlying assets and cash, using repurchasing agreement (repo) and margining, which incur funding costs. We derive a...

In this paper, we establish a market model for the term structure of forward inflation rates based on the risk-neutral dynamics of nominal and real zero-coupon bonds. Under the market model, we can price inflation caplets as well as inflation swaptions with a formula similar to the Black's...

In this paper we study a LIBOR market model with a volatility multiplier, which follows a square-root process. This model captures downward volatility skews through using negative correlations between forward rates and the multiplier. Approximate pricing formula is developed for swaptions, and...