The one-side defaultable financial derivatives valuation problems have been studied extensively, but the valuation of bilateral derivatives with asymmetric credit qualities is still lacking convincing mechanism. This paper presents an analytical model for valuing derivatives subject to default...

This paper presents an analytical model for valuing interest rate swaps, subject to bilateral counterparty credit risk. The counterparty defaults are modeled by the reduced-form model as the first jump of a time-inhomogeneous Poisson process. All quantities modeled are market-observable. The...

This article describes a valuation framework to build most common kinds of cancellation schedules and cancellation evens. The model can price generic cancellation derivatives accurately. It is very useful for derivatives trading and risk management.

In this paper we find empirical evidence of a new smirk factor, obtained from the jump structure of the risk neutral distribution of the underlying Lévy process. As an application we show how to price a barrier style contract.

In this paper we present new pricing formulas for some Power style contracts of European type when the underlying process is driven by an important class of L´evy processes, which includes CGMY model, generalized hyperbolic Model and Meixner Model, when no symmetry properties are assumed,...

An econometric or statistical model may undergo a marginal gain when a new variable is admitted, and marginal loss if an existing variable is removed. The value of a variable to the model is quantified by its expected marginal gain and marginal loss. Under a prior belief that all candidate...

The paper elaborates some analytical opportunities for econophysics in the implementation of Basel II documents for banking. We see this chances by reviewing some methodologies proposed by the econophysicists in the three important aspects of risk management: the market risk, credit risk, and...

e introduce an alternative approach to lottery prospects experimental design aimed at collecting experimental data for parametric estimation of the cumulative form of Prospect Theory (PT). Our approach incorporates two fundamental principles: ensuring that all tasks provide valuable information...

Risk can be defined as the likelihood that you can deliver your promise. This paper has used the European put option and the European call option to construct the p-index and c-index to measure the risk levels (likelihoods) of owning or short-selling an asset when the asset provides at least �...

In the continuous-time finance literature, it is claimed that the expected rate of return of underlying asset does not affect the option pricing model. This paper has shown that with no arbitrage, i.e., under the Arbitrage (Gordan) theorem, different underlying asset price processes used in the...