Showing 1 - 10 of 15,216
We present the non-Gaussian extension of the traditional Merton framework, which takes into account slowly relaxing fluctuations of the volatility of the firm's market value of financial assets. The minimal version of the model depends on the Tsallis entropic parameter q and the generalized...
Persistent link: https://www.econbiz.de/10013048256
We propose a new model in which option values are determined by economic variables. Given the price of the underlying asset and its volatility, the price of an option in the model depends on macroeconomic conditions. Using an index of current business conditions as the driver, the new model...
Persistent link: https://www.econbiz.de/10013008886
Options depending on the forward skew are very popular. One such option is the forward starting call option - the basic building block of a cliquet option. Widely applied models to account for the forward skew dynamics to price such options include the Heston model, the Heston-Hull-White model...
Persistent link: https://www.econbiz.de/10014211805
In this article, we propose an equilibrium pricing rule for the contingent claims by applying the economic premium principle initiated by Buhlmann (1980). The derivative markets in our model are over-the-counter (OTC) markets and have counterparty risks. We reconstruct the economic premium...
Persistent link: https://www.econbiz.de/10012999558
When dealing with multi-issuer credit derivatives such as CDO, it is customary to refer the reader to either of two approaches: “static models” which focus on the copula between the variables of interest, and “dynamic models” where the diffusion of the underlying variables is described...
Persistent link: https://www.econbiz.de/10013000790
In this paper we present two (semi)-analytic synthetic CDO tranche pricing formulas using a subordinator Levy Marshall-Olkin credit correlation model. These formulas can be easily evaluated in terms of machine computational time, therefore they are particularly suitable for the correlation model...
Persistent link: https://www.econbiz.de/10013001808
We develop a novel framework for computing the total valuation adjustment (XVA) of a European claim accounting for funding costs, counterparty credit risk, and collateralization. Based on no-arbitrage arguments, we derive the nonlinear backward stochastic differential equations (BSDEs)...
Persistent link: https://www.econbiz.de/10013005389
We study the problem of pricing contingent claims in the presence of uncertainty about the timing and the size of a jump in the price of the underlying. We characterize the price of the claim as the minimal solution of a constrained BSDE and derive a pricing PDE in the special case of a...
Persistent link: https://www.econbiz.de/10012969382
In this paper, we derive fully explicit closed-form expressions for the fair strike prices of discrete-time variance swaps under general affine GARCH type models that have been risk-neutralized with a family of variance dependent pricing kernels. The methodology relies on solving differential...
Persistent link: https://www.econbiz.de/10012950229
This paper proposes an approach for solving a multi-factor real options problem by approximating the underlying stochastic process with an implied binomial tree. The implied binomial tree is constructed to be consistent with simulated market information. By simulating European option prices as...
Persistent link: https://www.econbiz.de/10013024201