Implicit in industry standard option pricing models is the expectation that roughly 25% of stocks with 60% consistent volatility will septuple within 10 years, an extraordinary rate of appreciation. The exceptionally high equilibrium anticipated returns for an improbably large percentage of high...

Pushing models to extremes can expose output biases that stem from underlying assumptions. In the case of industry standard option valuation models, long term, high volatility securities provide a stress test vehicle. For instance, in evaluating a stock with 60% volatility, industry standard...

Under the new Basel bank capital framework, a bank must group its retail exposures into multiple segments with homogeneous risk characteristics. The U.S. regulatory agencies believe that a bank may use the internal models, including the loan-level risk parameter estimates such as PD and LGD, to...

Under the new Basel bank capital framework, each bank must group its retail exposures into multiple segments with homogeneous risk characteristics. The U.S. regulatory agencies believe that each bank may use its internal risk models for the loan-level risk parameter estimates such as probability...

Background: For over 40 years, the franchise ownership redirection hypothesis has attracted the attention of many scholars. This study, differing from previous ones, proposes an alternative approach for this hypothesis using a real options framework with the extension of agency theory. Method:...

In this work, we adapt a Monte Carlo algorithm introduced by Broadie and Glasserman in 1997 to price a Û-option. This method is based on the simulated price tree that comes from discretization and replication of possible trajectories of the underlying asset's price. As a result, this algorithm...

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...

We propose and empirically study a pricing model for convertible bonds based on Monte Carlo simulation. The method uses parametric representations of the early exercise decisions and consists of two stages. Pricing convertible bonds with the proposed Monte Carlo approach allows us to better...

A new, very efficient and fairly simple simulation method for European basket and Asian options under the geometric Brownian motion assumption is presented. It is based on a new control variate method that uses the closed form of the expected payoff conditional on the assumption that the...