We present a method to solve the free-boundary problem that arises in the pricing of classical American options. The method presented herein leverages on a one factor approximation and the moving boundary approach to yield an algorithm which has superior run times and accuracy as compared other...

The problem of pricing an American option written on an underlying asset with constant price volatility has been studied extensively in literature. Real-world data, however, demonstrates that volatility is not constant and stochastic volatility models are used to account for dynamic volatility...

Purpose: The credit ratings issued by the Big 3 ratings agencies are inaccurate and slow to respond to market changes. This paper aims to develop a rigorous, transparent and robust credit assessment and rating scheme for sovereigns. Design/methodology/approach: This paper develops a...

Purpose: Basel III regulations require banks to protect themselves against strategic risk. This paper aims to provide a comprehensive and measurable definition of this risk and proposes a framework to estimate economic capital requirements. Design/methodology/approach: The paper studies the...

The optimal-exercise policy of an American option dictates when the option should be exercised. In this paper, we consider the implications of missing the optimal exercise time of an American option. For the put option, this means holding the option until it is deeper in-the-money when the...

The optimal-exercise policy of an American option dictates when the option should be exercised. In this paper, we consider the implications of missing the optimal exercise time of an American option. For the put option, this means holding the option until it is deeper in-the-money when the...