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We present the method of moments approach to pricing barrier-type options when the underlying is modelled by a general class of jump diffusions. By general principles the option prices are linked to certain infinite dimensional linear programming problems. Subsequently approximating those...
Persistent link: https://www.econbiz.de/10005098523
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In this paper we study the joint ruin problem for two insurance companies that divide between them both claims and premia in some specified proportions (modeling two branches of the same insurance company or an insurance and re-insurance company). Modeling the risk processes of the insurance...
Persistent link: https://www.econbiz.de/10005380697
Let ξ1,ξ2,… be an iid sequence with negative mean. The (m,n)-segment is the subsequence ξm+1,…,ξn and its score is given by max{∑m+1nξi,0}. Let Rn be the largest score of any segment ending at time n, Rn∗ the largest score of any segment in the sequence ξ1,…,ξn, and Ox the...
Persistent link: https://www.econbiz.de/10011208325
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Static and discrete time pricing operators for two price economies are reviewed and then generalized to the continuous time setting of an underlying Hunt process. The continuous time operators define nonlinear partial integro–differential equations that are solved numerically for the three...
Persistent link: https://www.econbiz.de/10010989123
We develop a new Monte Carlo variance reduction method to estimate the expectation of two commonly encountered path-dependent functionals: first-passage times and occupation times of sets. The method is based on a recursive approximation of the first-passage time probability and expected...
Persistent link: https://www.econbiz.de/10010941081
We investigate the problem of optimal dividend distribution for a company in the presence of regime shifts. We consider a company whose cumulative net revenues evolve as a Brownian motion with positive drift that is modulated by a finite state Markov chain, and model the discount rate as a...
Persistent link: https://www.econbiz.de/10005098889
The Wiener-Hopf factorization is obtained in closed form for a phase type approximation to the CGMY L\'{e}vy process. This allows, for the approximation, exact computation of first passage times to barrier levels via Laplace transform inversion. Calibration of the CGMY model to market option...
Persistent link: https://www.econbiz.de/10005099101
In this paper we present an algorithm for pricing barrier options in one-dimensional Markov models. The approach rests on the construction of an approximating continuous-time Markov chain that closely follows the dynamics of the given Markov model. We illustrate the method by implementing it for...
Persistent link: https://www.econbiz.de/10005099130