In this paper we consider the optimal stopping problem for general dynamic monetary utility functionals. Sufficient conditions for the Bellman principle and the existence of optimal stopping times are provided. Particular attention is payed to representations which allow for a numerical...

This paper applies to the static hedge of barrier options a technique, mean-square hedging, designed to minimize the size of the hedging error when perfect replication is not possible. It introduces an extension of this technique which preserves the computational efficiency of mean-square...

The Heston model stands out from the class of stochastic volatility (SV) models mainly for two reasons. Firstly, the process for the volatility is nonnegative and mean-reverting, which is what we observe in the markets. Secondly, there exists a fast and easily implemented semi-analytical...

Sensitivity analysis studies how the variation in the numerical output of a model can be quantitatively apportioned to different sources of variation in basic input parameters. Thus, it serves to examine the robustness of numerical results with respect to input parameters, which is a...

Quantiles play an important role in modelling quality of service in the service industry and in modelling risk in the financial industry. Recently, Hong showed in his breakthrough papers that efficient simulation based estimators can be obtained for quantile sensitivities by means of sample path...

In Monte Carlo simulation, Latin hypercube sampling (LHS) [McKay et al. (1979)] is a well-known variance reduction technique for vectors of independent random variables. The method presented here, Latin hypercube sampling with dependence (LHSD), extends LHS to vectors of dependent random...

This paper focuses on firm valuation for tax purposes of non-listed company shares and its sensitivity towards different market conditions. Since the value of a private company cannot be observed on the stock market the value has to be estimated. Due to uncertainty, expected future profits may...

Many economic and econometric applications require the integration of functions lacking a closed form antiderivative, which is therefore a task that can only be solved by numerical methods. We propose a new family of probability densities that can be used as substitutes and have the property of...

The credit valuation adjustment (CVA) of OTC derivatives is an important part of the Basel III credit risk capital requirements and current accounting rules. Its calculation is not an easy task - not only it is necessary to model the future value of the derivative, but also the probability of...