As a first part of a series of articles on the pricing of interest rate contingent claims in the multifactor Quadratic Gaussian model, we concentrate on the pricing of caps and floors leaving the pricing of swaptions and multi-currency claims to a latter stage. Using an efficient way of...

We establish the need for local volatility coupled with domestic and foreign stochastic interest rates to properly manage some exotic hybrid options. We then compute such a local volatility and identify a bias with respect to the local volatility with deterministic rates. Performing...

Using the properties of the Affine and Quadratic models we derive the dynamic of the variance swaps. We then modify the option pricing approximation technique described by Bloch in Fast calibration of the Affine and Quadratic models in order to approximate the price of European options on...

We are going to use the properties of the Affine and Quadratic jump-diffusion models to formulate a general theory of the libor market model that is consistent with the pricing of both caplets and swaptions. We will assume certain types of processes for the dynamic of the forward rates and their...

Using the recent work of Alos and Ewald on option pricing approximations we extend their approach to some specific jump-diffusion models with stochastic interest rates, compute the Greeks and improve the accuracy of the approximations. Further, we obtain analytical solutions to the price of...

According to the World Economic and Social Survey 2009, the review of available estimates of mitigation and adaptation costs suggests that additional annual total investments in developing countries could be upwards of $1 trillion per year. Given the limited ability of developing countries to...

Natural hazard events in 2010 and 2011 such as the eruption of the volcano Eyjafjallajokull on Iceland, the heatwave in Russia, the extreme floods in northeastern Australia, and more recently the earthquake followed by a tsunami at Fukushima in Japan demonstrated the vulnerability of the...

The study considers a stochastic local volatility model with domestic and foreign stochastic interest rates and identifies a bias with respect to the deterministic local volatility with deterministic rates. Relating the local volatility of the model to that of the forward price, the study...

The only thing one can say about financial markets is that parsimonious information on option prices is available in time and space, and that we can only use the No-Dominance law (or stronger version of No-Arbitrage) to account for it. Thus, one requires a consistent model to assess relative...