This paper presents a simulation study of hedging long-dated futures options, in the Rabinovitch (1989) model which assumes correlated dynamics between spot asset prices and interest rates. Under this model and when the maturity of the hedging instruments match the maturity of the option,...

I document a sizeable bias that might arise when valuing out of the money American options via the Least Square Method proposed by Longstaff and Schwartz (2001). The key point of this algorithm is the regression-based estimate of the continuation value of an American option. If this regression...

We propose a method to extract the risk-neutral distribution of firm-specific stock returns using both options and credit default swaps (CDS). Options and CDS provide information about the central part and the left tail of the distribution, respectively. Together but not in isolation, options...

Recently, the advantages of conformal deformations of the contours of integration in pricing formulas were demonstrated in the context of wide classes of Levy models and the Heston model. In the present paper we construct efficient conformal deformations of the contours of integration in the...

In recent years, a liquid market for options on a broad credit default swap index (CDX) has developed. We study the extent to which these options are priced consistently with options on a broad equity index (SPX). We consider a rich structural credit risk model in which firm assets follow a...

Based on the works of Brockman and Turtle (2003) and Giesecke (2004), we propose in this study a hybrid barrier option model to explain observed credit spreads. It is free of problems with the structural model which underprescribed credit spreads for investment grade corporate bonds and...

This paper studies game-type credit default swaps that allow the protection buyer and seller to raise or reduce their respective positions once prior to default. This leads to the study of an optimal stopping game subject to early default termination. Under a structural credit risk model based...

We propose an iterative method for pricing American options under jump-diffusion models. A finite difference discretization is performed on the partial integro-differential equation, and the American option pricing problem is formulated as a linear complementarity problem (LCP). Jump-diffusion...

This paper develops a valuation model of European options incorporating a stochastic default barrier, which extends a constant default barrier proposed in the Hull-White model. The default barrier is considered as an option writer's liability. Closed-form solutions of vulnerable European option...