Related papers: Approximate formulae for pricing zero-coupon bonds…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
In this work, I generalize Merton's approach of pricing risky debt to the case where the interest rate risk is modeled by the CIR term structure. Closed form result for pricing the debt is given for the case where the firm value has…
We study the optimal stopping problem of pricing an American Put option on a Zero Coupon Bond (ZCB) in the Musiela's parametrization of the Heath-Jarrow-Morton (HJM) model for forward interest rates. First we show regularity properties of…
This paper focuses on the pricing of continuous geometric Asian options (GAOs) under a multifactor stochastic volatility model. The model considers fast and slow mean reverting factors of volatility, where slow volatility factor is…
We present a new approach for the pricing of interest rate derivatives which allows a direct computation of option premiums without deriving a (Black-Scholes type) partial differential equation and without explicitly solving the stochastic…
We provide analytical pricing formula of corporate defaultable bond with both expected and unexpected default in the case with stochastic default intensity. In the case with constant short rate and exogenous default recovery using PDE…
We consider the problem of pricing discretely monitored Asian options over $T$ monitoring points where the underlying asset is modeled by a geometric Brownian motion. We provide two quantum algorithms with complexity poly-logarithmic in $T$…
We study a multivariate autoregressive stochastic volatility model for the first 3 principal components (level, slope, curvature) of 10 series of zero-coupon Treasury bond rates with maturities from 1 to 10 years. We fit this model using…
The Hull-White one factor model is used to price interest rate options. The parameters of the model are often calibrated to simple liquid instruments, in particular European swaptions. It is therefore very important to have very efficient…
In the present paper, a decomposition formula for the call price due to Al\`{o}s is transformed into a Taylor type formula containing an infinite series with stochastic terms. The new decomposition may be considered as an alternative to the…
We tackle the problem of pricing Chinese convertible bonds(CCBs) using Monte Carlo simulation and dynamic programming. At each exercise time, we use the state variables of the underlying stock to regress the continuation value, and apply…
In a simplified setting, we show how to price invoice non-recourse factoring taking into account not only the credit worthiness of the debtor but also the assignor's one, together with the default correlation between the two. Indeed, the…
We introduce a new model for pricing corporate bonds, which is a modification of the classical model of Merton. In this new model, we drop the liquidity assumption of the firm's asset value process, and assume that there is a liquidly…
In this article, we consider a Markov-modulated model with jumps for short rate dynamics. We obtain closed formulas for the term structure and forward rates using the properties of the jump-telegraph process and the expectation hypothesis.…
In this paper we present qualitative and quantitative comparison of various analytical and numerical approximation methods for calculating a position of the early exercise boundary of the American put option paying zero dividends. First we…
Options on baskets (linear combinations) of assets are notoriously challenging to price using even the simplest log-normal continuous-time stochastic models for the individual assets. The paper [5] gives a closed form approximation formula…
After the beginning of the credit and liquidity crisis, financial institutions have been considering creating a convertible-bond type contract focusing on Capital. Under the terms of this contract, a bond is converted into equity if the…
We analyze 18 quadrillion models for the joint pricing of corporate bond and stock returns. Strikingly, we find that equity and nontradable factors alone suffice to explain corporate bond risk premia once their Treasury term structure risk…
We consider a two-factor model for the valuation of a non callable defaultable bond which pays coupons at certain given dates. The model under consideration is the Jump to Default Constant Elasticity of Variance (JDCEV) model. The JDCEV…
We propose an efficient method to evaluate callable and putable bonds under a wide class of interest rate models, including the popular short rate diffusion models, as well as their time changed versions with jumps. The method is based on…