Related papers: A Unified Framework for Pricing Credit and Equity …
The issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a…
We introduce an arbitrage-free framework for robust valuation adjustments. An investor trades a credit default swap portfolio with a risky counterparty, and hedges credit risk by taking a position in defaultable bonds. The investor does not…
We compare observed corporate cumulative default probabilities to those calculated using a stochastic model based on an extension of the work of Black and Cox and find that corporations default as if via diffusive dynamics. The model, based…
We analyze the counterparty risk embedded in CDS contracts, in presence of a bilateral margin agreement. First, we investigate the pricing of collateralized counterparty risk and we derive the bilateral Credit Valuation Adjustment (CVA),…
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
In this paper we present formulas for the valuation of debt and equity of firms in a financial network under comonotonic endowments. We demonstrate that the comonotonic setting provides a lower bound and Jensen's inequality provides an…
We present a general derivation of the arbitrage-free pricing framework for multiple-currency collateralized products. We include the impact on option pricing of the policy adopted to fund in foreign currency, so that we are able to price…
Financial options are contracts that specify the right to buy or sell an underlying asset at a strike price by an expiration date. Standard exchanges offer options of predetermined strike values and trade options of different strikes…
This paper proposes a Monte Carlo technique for pricing the forward yield to maturity, when the volatility of the zero-coupon bond is known. We make the assumption of deterministic default intensity (Hazard Rate Function). We make no…
Extracting implied information, like volatility and/or dividend, from observed option prices is a challenging task when dealing with American options, because of the computational costs needed to solve the corresponding mathematical problem…
A unified analytical pricing framework with involvement of the shot noise random process has been introduced and elaborated. Two exactly solvable new models have been developed. The first model has been designed to value options. It is…
Models to price long term loans in the securities lending business are developed. These longer horizon deals can be viewed as contracts with optionality embedded in them. This insight leads to the usage of established methods from…
The credit spread is a key indicator in bond investments, offering valuable insights for fixed-income investors to devise effective trading strategies. This study proposes a novel credit spread forecasting model leveraging ensemble learning…
The Constant Elasticity of Variance (CEV) model is mathematically presented and then used in a Credit-Equity hybrid framework. Next, we propose extensions to the CEV model with default: firstly by adding a stochastic volatility diffusion…
Entropy based ideas find wide-ranging applications in finance for calibrating models of portfolio risk as well as options pricing. The abstracted problem, extensively studied in the literature, corresponds to finding a probability measure…
We present a neural network based calibration method that performs the calibration task within a few milliseconds for the full implied volatility surface. The framework is consistently applicable throughout a range of volatility models…
This work examines a stochastic volatility model with double-exponential jumps in the context of option pricing. The model has been considered in previous research articles, but no thorough analysis has been conducted to study its quality…
The robust option pricing problem is to find upper and lower bounds on fair prices of financial claims using only the most minimal assumptions. It contrasts with the classical, model-based approach and gained prominence in the wake of the…
In this short paper, we study the simulation of a large system of stochastic processes subject to a common driving noise and fast mean-reverting stochastic volatilities. This model may be used to describe the firm values of a large pool of…
We describe a high performance parallel implementation of a derivative pricing model, within which we introduce a new parallel method for the calibration of the industry standard SABR (stochastic-\alpha \beta \rho) stochastic volatility…