Experimental evidence and opinions of market professionals suggest that people rely on mental accounting while valuing a call option. I show that mental accounting generates a closed-form alternative to the Black Scholes formula that does not require a complete market. The new formula is...

Many derivatives products are directly or indirectly associated with integrated diffusion processes. We develop a general perturbation method to price those derivatives. We show that for any positive diffusion process, the hitting time of its integrated process is approximately normally...

We develop an approximation technique for pricing finite-maturity timer options under Heston-like stochastic volatility models. By approximating the distributions of the accumulated variance and the random variance budget exceeding time, we obtain analytic expressions for timer option prices...

Most of the assets on the balance sheet of typical banks are illiquid. This exposes banks to liquidity risk, which is one of the key risks for banks. Since the value of assets is determined by their risks, liquidity risk should be included in valuation. This paper develops a valuation framework...

Spanish Abstract: En esta investigación se describen los distintos mercados de swaps y se desarrollan varias fórmulas de valuación sobre los supuestos de equilibrio general y ausencia de riesgo crédito. La mayoría de estos contratos pueden analizarse como la diferencia entre dos bonos...

In this paper we explore the different components that should be incorporated in the price of uncollateralized derivatives. We do so by putting special focus on the hedge-ability of every term. In order to reflect the most realistic situation, we assume stochastic credit spreads for both...

Most of the assets on the balance sheet of typical banks are illiquid. This exposes banks to liquidity risk, which is one of the key risks for banks. Since the value of assets is determined by their risks, liquidity risk should be included in valuation. This paper develops a valuation framework...

Most of the assets on the balance sheet of a typical bank are illiquid. This exposes the bank to liquidity risk, which is one of the key risks for banks. Since the value of assets is determined by their risks, liquidity risk should be included in their valuation. Although in the literature...

Most of the assets on the balance sheet of a typical bank are illiquid. This exposes the bank to liquidity risk, which is one of the key risks for banks. Since the value of assets is determined by their risks, liquidity risk should be included in their valuation. Although in the literature...

As a byproduct of the 2007-2008 credit crunch, derivatives pricing and risk management are experiencing a dramatic transformation. Assumptions that were widely accepted not long ago, like absence of counterparty credit risk and the existence of a unique risk free curve available for every...