In this paper, we reexamine and extend the stochastic volatility model of Stein and Stein (1991) where volatility follows a mean-reversion Ornstein-Uhlenbeck process. Using Fourier inversion techniques we are able to allow for correlation between instantaneous volatilities and the underlying...

Simple formulas for the prices of corporate discount and coupon bonds are found using the Longstaff and Schwartz (1995) valuation approach for the debt claims of a firm, where default is triggered by a special state variable: the firm's asset-to-debt-ratio. Instead of keeping the total amount of...

We extend a framework based on Mellin transform techniques and show how the approach can be modified to value American call options on dividend paying stocks. We derive a new integral equation to determine the price of an American call option and its free boundary using modified Mellin...

Even if the correct modeling of default dependence is essential for the valuation of portfolio credit derivatives, for the pricing of synthetic CDOs a one-factor Gaussian copula model with constant and equal pairwise correlations for all assets in the reference portfolio has become the standard...

The correct modeling of default dependence is essential for the valuation of multiname credit derivatives. However for the pricing of synthetic CDOs a one-factor Gaussian copula model with constant and equal pairwise correlations, default intensities and recovery rates for all assets in the...

This paper focuses on the valuation of caps, floors, and collars in a contingent claim framework under continuous time. These instruments are interpreted as options on traded zero coupon bonds. The bond prices themselves are used as the underlying stochastic variables. This has the advantage...