This paper models Continuous Workout Mortgages (CWMs) in an economic environment with refinancings and prepayments by employing a market-observable variable such as the house price index of the pertaining locality. Our main results include: (a) explicit modelling of repayment and interest-only...

Empirical studies on quoted options highlight deviations from the theoretical model of Black and Scholes; this is due to different causes, such as assumptions regarding the price dynamics, markets frictions and investors' attitude toward risk. In this contribution, we focus on this latter issue...

Asian options are securities with a payoff that depends on the average of the underlying stock price over a certain time interval. We identify three natural assets that appear in pricing of the Asian options, namely a stock S, a zero coupon bond BT with maturity T, and an abstract asset A (an...

We consider the problem of reducing the variance of Monte Carlo estimators of multivariate estimation problems by combining the variance reduction techniques Latin hypercube sampling with dependence (LHSD), control variates and importance sampling. Under some standard conditions, the resulting...

A credit-linked note (CLN) on a tranche of the CDX index (partially) protects the holder against default losses in that tranche. The holder receives a specified redemption amount at note maturity. The note is priced using market spread quotes for a matching CDS on this tranche

A callable leveraged constant maturity swap (CMS) spread note allows the holder to benefit from future changes in the spread between two swap interest rates. The issues retains the right to call the note at pre-specified times in the future. The note is priced via Monte Carlo simulation using...

This contribution deals with options on assets which pay cash dividends. Pricing methods which consider discrete dividends are usually computationally expensive; a first purpose of this paper is to study efficient and accurate numerical procedures which yield consistent prices for both European...

We present a robust method for simulating an increment of a Levy process, based on decomposing the jump part of the process into the sum of its positive and negative jump components. The characteristic exponent of a spectrally one-sided Levy process has excellent analytic properties, which we...

It is often argued that Quasi-Monte Carlo Methods (QMC ) only work for problems of low effective dimension that encompass most of financial problems. We will show here some evidence that, with the Sobol construction, they can be suited for problems with high effective dimension in the truncation...

Motivated by problems in mathematical finance and insurance, this paper discusses optimal stopping problem in general setting. It considers discounted running cost and stopping cost in addition to terminal gain in the objective function, subject to be optimized over finite-time period. The...