The Markov Tree model is a discrete-time option pricing model that accounts for short-term memory of the underlying asset. In this work, we compare the empirical performance of the Markov Tree model against that of the Black-Scholes model and Heston's stochastic volatility model. Leveraging a...

The main goal of this paper is to better understand the behavior of credit spreads in the past and the potential risk of unexpected future credit spread changes. One important consideration to note regarding credit spreads is the fact that bond spreads contain a liquidity premium, which...

We introduce a new importance sampling method for pricing basket default swaps based on exchangeable Archimedean copulas and nested Gumbel copulas. We establish more realistic dependence structure than the existing copula models for credit risks in the underlying portfolio, and propose an...

A method to price American-style option contracts in a limited information framework is introduced. The pricing methodology is based on sequential Monte Carlo techniques, as presented in Doucet, de Freitas, and Gordon's text "Sequential Monte Carlo Methods in Practice", and the least-squares...

We introduce a new method to price American-style options on underlying investments governed by stochastic volatility (SV) models. The method does not require the volatility process to be observed. Instead, it exploits the fact that the optimal decision functions in the corresponding dynamic...

Usually a Libor Market model with a stochastic basis as speci ed for instance by Mercurio, F. (2009) lacks of a suitable calibration since there are not enough market quotes available. To this end we suggest to take a low parametric model which essentially is calibrated to the current OIS curve....

In this document we consider the problem of deriving volatilities of non-standard tenors given quotes for standard tenors. Especially, we aim to derive volatilities for caps and swaptions from given quotes for a short tenor, for instance 3m, and derive volatilties for a longer tenor, for...

This paper proposes an improved procedure for stochastic volatility model estimation with an application to Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR) estimation. This improved procedure is composed of the following instrumental components: Fourier transform method for volatility...

An enhanced option pricing framework that makes use of both continuous and discontinuous time paths based on a geometric Brownian motion and Poisson-driven jump processes respectively is performed in order to better fit with real-observed stock price paths while maintaining the analytical...

Considering the current interest rate environment it has become necessary to extend option pricing models for 0 and negative strikes. We consider the recently proposed free boundary SABR model, Antonov A., Konikov, M., and Spector, M. (2015). In their paper the authors provide a pricing formula...