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...

The slope of the implied volatility term structure is positively related to future option returns. We rank firms based on the slope of the volatility term structure and analyze the returns for straddle portfolios. Straddle portfolios with high slopes of the volatility term structure outperform...

In this article, we study the algorithmic calculation of present values greeks for callable exotic instruments. The speed of greeks evaluations becomes important with recent initial margin rules, including the ISDA standard model SIMM, requiring sensitivity calculations for non-cleared deals...

Computing Standardized Initial Margin Model Margin Valuation Adjustment (SIMM-MVA) requires the simulation of future sensitivities, but these are expensive to compute for callable products. This paper introduces a method which avoids nested calls to the pricing function, similar to the use of...

One-way coupling often occurs in multi-dimensional models in finance. In this paper, we present a dimension reduction technique for Monte Carlo (MC) methods, referred to as drMC, that exploits this structure for pricing plain-vanilla European options under a N-dimensional one-way coupled model,...

This chapter surveys the literature on fixed-income pricing models, including dynamic term-structure models, and interest-rate sensitive, derivative pricing models. Our overview of conceptual approaches highlights the tradeoffs that have emerged between the complexity of the probability model...

This is a survey of the basic theoretical foundations of intertemporal asset pricing theory. The broader theory is first reviewed in a simple discrete-time setting, emphasizing the key role of state prices. The existence of state prices is equivalent to the absence of arbitrage. State prices,...

We develop highly-efficient parallel Partial Differential Equation (PDE) based pricing methods on Graphics Processing Units (GPUs) for multi-asset American options. Our pricing approach is built upon a combination of a discrete penalty approach for the linear complementarity problem arising due...

We present a Graphics Processing Unit (GPU) parallelization of the computation of the price of exotic cross-currency interest rate derivatives via a Partial Differential Equation (PDE) approach. In particular, we focus on the GPU-based parallel pricing of long-dated foreign exchange (FX)...

The Libor Market Model (LMM) describes the evolution of a yield curve through equations for a discrete set of forward rates. In the original version, the rate dynamic was log-normal. The rate dynamic has been extended. The main result presented here is a generic approximation that provides an...