We consider a class of functions satisfying the gross-substitution property (GS-functions). We show that GS-functions are concave functions whose parquets are constributed by quasi-polymatroids. The class of conjugate functions to GS-functions turns out to be the class of polyhedral supermodular...

We outline a martingale duality method for determining the minimal entropy martingale measure in a general continuous semimartingale model, and provide the relevant verification results. This method is illustrated by a detailed case study of the Stein and Stein stochastic volatility model driven...

In a heterogenous agents framework, we study a randomized version of Zeeman's market model with fundamental and momentum traders. Using methods from random dynamical systems theory, we examine convergence properties of invariant measures which correspond to market equilibria. It turns out that...

Asset process driven by non-normal Lévy processes have become popular in the last few years. To be mentioned are models, where the asset processes are pure Lévy processes. Such models date back the work of Mandelbrot (1967). But also more complex models as for example stochastic volatility...

We investigate the theoretical and empirical difference between thestandard convexity adjustment and Forward Libor Model in a particular case oftwo-period Constant Maturity Swaps. Using daily data from 1991 to 1997, wesimulate the difference (spread) between the two-period CMS swap rates...

Credit Default Swaps (CDS) are in the process of becoming, liquid and extremelyinformative instruments of default risk. Yet, default swap market has severalnovel aspects that have not received much attention. In this paper we studyan aspect of CDS´s that relates to the prediction of financial...

Contingent Credit Lines (CCL) play an important role in the functioning of shortterm capital markets, yet their pricing and hedging have received little interest inthe theoretical finance literature. Risk management issues that arise in maintainingportfolios of CCL are almost completely...

In this paper we present a model to price and hedge basket credit derivatives andcollateralised loan obligation. Based upon the copula-approach by Schönbucher and Schubert (2001) the model allows a specification of the joint dynamics of credit spreads and default intensities, including a...

In this note the pricing of options on credit default swaps using the survival-measure -pricing technique is discussed. In particular, we derive amodification of the famous Black (1976) futures pricing formula which appliesto options on CDS, and show how other pricing formulae can be easily...

In this paper, we investigate how investors who face both equity risk andcredit risk would optimally allocate their financial wealth in a dynamic continuous-time setup. We model credit risk through the defaultable zero-coupon bond and solve the dynamics of its price after pricing it. Using...