Multi-staged R&D projects are copy-book cases of compound real options. Traditional compound option models assume a constant volatility over the lifetime of the project. Building on the n-fold compound option model of Cassimon et al. (2004), we extend this model to allow for phase-specific...

We provide a novel methodology for constructing optimal portfolios of financial assets that goes beyond the standard Markowitz and CAPM settings. Under general second order stochastic dominance we point out how via majorization techniques the efficient frontier can be constructed. For the...

We provide a novel methodology for precise diagnostics of the dependence in portfolio credit derivatives under a top-down setting. The latter framework poses a conceptual challenge since no a priori copula is assumed and it can be only implied. Doing this can help not only to have a better...

We consider a risky country having bonds outstanding both in foreign hard currency (Eurobonds) and local soft currency (treasuries). This is done under an enhanced structural credit risk Merton style model. The liability side the sovereign balance sheet is composed of three tranches in...

We build an enhanced structural credit risk Merton style model for a risky sovereign having both domestic and foreign debt outstanding. If earlier research was mainly focused on the fundamental values of the respective local and foreign currency bonds, here we move forward by elaborating on...

The paper considers a no-arbitrage setting for pricing and relative value analysis of risky sovereign bonds. The typical case of an emerging market country (EM) that has bonds outstanding both in foreign hard currency (Eurobonds) and local soft currency (treasuries) is inspected. The resulting...

The paper investigates the Subprime and the European sovereign debt crises through the prism of a novel methodology for portfolio credit derivatives analytics - a dynamic top-down HJM setting. Interestingly, the eurozone resembles a giant CDO in its financial construct which makes such an...

No-arbitrage surfaces implied from the parameters of benchmark stochastic financial models have attracted considerable attention. They are convenient objects that statically give access to the marginals of the state variables and dynamically to their law. The former help to price vanillas and to...

The paper proposes a new methodology for bootstrapping a single-tranche CDO and estimating the term structure of expected loss. If for a CDS swap there is a clear established standard in the face of the ISDA CDS Standard Model that relies on a survival curve based on default intensity, for a CDO...