Related papers: An exact formula for default swaptions' pricing in…
We propose Monte Carlo calibration algorithms for three models: local volatility with stochastic interest rates, stochastic local volatility with deterministic interest rates, and finally stochastic local volatility with stochastic interest…
We detect the parameter sensitivities of bond pricing which is driven by a Brownian motion and a compound Poisson process as the discontinuous case in credit risk research. The strict mathematical deductions are given theoretically due to…
In this paper, a geometric function is introduced to reflect the attenuation speed of impact of one firm's default to its partner. If two firms are competitions (copartners), the default intensity of one firm will decrease (increase)…
This paper addresses the problem of pricing involved financial derivatives by means of advanced of deep learning techniques. More precisely, we smartly combine several sophisticated neural network-based concepts like differential machine…
In this article, we study the problem of pricing defaultable bond with discrete default intensity and barrier under constant risk free short rate using higher order binary options and their integrals. In our credit risk model, the risk free…
We introduce closed-form transition density expansions for multivariate affine jump-diffusion processes. The expansions rely on a general approximation theory which we develop in weighted Hilbert spaces for random variables which possess…
First passage models, where corporate assets undergo a random walk and default occurs if the assets fall below a threshold, provide an attractive framework for modeling the default process. Recently such models have been generalized to…
In this paper, we present the double smoothed nonparametric approach for infinitesimal conditional volatility of jump-diffusion model based on high frequency data. Under certain minimal conditions, we obtain the strong consistency and…
In this paper the zero vanna implied volatility approximation for the price of freshly minted volatility swaps is generalised to seasoned volatility swaps. We also derive how volatility swaps can be hedged using a strip of vanilla options…
This paper proposes to model asset price dynamics with a mixture of diffusion processes where the instantaneous volatility of the underlying diffusion process contains a random vector. The marginal probability distributions of the proposed…
We study densities of two-dimensional diffusion processes with one non-negative component. For such diffusions, the density may explode at the boundary, thus making a precise specification of the boundary condition in the corresponding…
Mandatory emission trading schemes are being established around the world. Participants of such market schemes are always exposed to risks. This leads to the creation of an accompanying market for emission-linked derivatives. To evaluate…
In this paper we discuss the basket options valuation for a jump-diffusion model. The underlying asset prices follow some correlated local volatility diffusion processes with systematic jumps. We derive a forward partial integral…
This study proposes a stochastic model for loss-given-default (LGD) which provides the LGD distribution based on credit market and company-specific financial conditions. The model utilizes last passage time of a linear diffusion…
We derive an arbitrage free relationship between recovery swap rates, digital default swap spreads and conventional CDS spreads, and argue that the fair forward recovery rate used in recovery swaps must contain a convexity premium over the…
This paper considers the single factor Heath-Jarrow-Morton model for the interest rate curve with stochastic volatility. Its natural formulation, described in terms of stochastic differential equations, is solved through Monte Carlo…
We introduce a multi-factor stochastic volatility model based on the CIR/Heston stochastic volatility process. In order to capture the Samuelson effect displayed by commodity futures contracts, we add expiry-dependent exponential damping…
The two main approaches in credit risk are the structural approach pioneered in Merton (1974) and the reduced-form framework proposed in Jarrow & Turnbull (1995) and in Artzner & Delbaen (1995). The goal of this article is to provide a…
In [Precise Asymptotics for Robust Stochastic Volatility Models; Ann. Appl. Probab. 2021] we introduce a new methodology to analyze large classes of (classical and rough) stochastic volatility models, with special regard to short-time and…
We study specific nonlinear transformations of the Black-Scholes implied volatility to show remarkable properties of the volatility surface. Model-free bounds on the implied volatility skew are given. Pricing formulas for the European…