A quantitative analysis on the pricing of forward starting options under stochastic volatility and stochastic interest rates is performed. The main finding is that forward starting options not only depend on future smiles, but also directly on the evolution of the interest rates as well as the...

We deal with discretization schemes for the simulation of the Heston stochastic volatility model. These simulation methods yield a popular and flexible pricing alternative for pricing and managing a book of exotic derivatives which cannot be valued using closed-form expressions. For the Heston...

We consider the pricing of long-dated insurance contracts under stochastic interest rates and stochastic volatility. In particular, we focus on the valuation of insurance options with long-term equity or foreign exchange exposures. Our modeling framework extends the stochastic volatility model...

Guaranteed annuity options are options providing the right to convert a policyholder's accumulated funds to a life annuity at a fixed rate when the policy matures. These options were a common feature in UK retirement savings contracts issued in the 1970's and 1980's when interest rates were...

Life insurance products have profit sharing features in combination with guarantees. These so-called embedded options are often dependent on or approximated by forward swap rates. In practice, these kinds of options are mostly valued by Monte Carlo simulations. However, for risk management...

We introduce a general class of interest rate models in which the value of pure discount bonds can be expressed as a functional of some (low-dimensional) Markov process. At the abstract level this class includes all current models of practical importance. By specifying these models in...

In this paper we address the pricing of double barrier options. To derive the density function of the first-hit times of the barriers, we analytically invert the Laplace transform by contour integration. With these barrier densities, we derive pricing formulÖfor new types of barrier options:...

This paper shows that the forward rates process discretized by a single time step together with a separability assumption on the volatility function allows for representation by a low-dimensional Markov process. This in turn leads to e±cient pricing by for example finite differences. We then...

This article presents a novel approach for calculating swap vega per bucket in the Libor BGM model. We show that for some forms of the volatility an approach based on re-calibration may lead to a large uncertainty in estimated swap vega, as the instantaneous volatility structure may be distorted...