Related papers: A model-insensitive determination of First-hitting…
We study the problem of finding probability densities that match given European call option prices. To allow prior information about such a density to be taken into account, we generalise the algorithm presented in Neri and Schneider (2011)…
The Wiener-Hopf factorization is obtained in closed form for a phase type approximation to the CGMY L\'{e}vy process. This allows, for the approximation, exact computation of first passage times to barrier levels via Laplace transform…
We solve the first-passage problem for the Heston random diffusion model. We obtain exact analytical expressions for the survival and hitting probabilities to a given level of return. We study several asymptotic behaviors and obtain…
We consider the pricing and hedging of exotic options in a model-independent set-up using \emph{shortfall risk and quantiles}. We assume that the marginal distributions at certain times are given. This is tantamount to calibrating the model…
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…
We introduce a class of randomly time-changed fast mean-reverting stochastic volatility models and, using spectral theory and singular perturbation techniques, we derive an approximation for the prices of European options in this setting.…
One of the shortcomings of the Black and Scholes model on option pricing is the assumption that trading of the underlying asset does not affect the price of that asset. This assumption can be fulfilled only in perfectly liquid markets.…
We extend the information-based asset-pricing framework by Brody, Hughston \& Macrina to incorporate a stochastic bankruptcy time for the writer of the asset. Our model introduces a non-defaultable cash flow $Z_T$ to be made at time $T$,…
We derive a general multivariate theory for realised characteristics of `model-free discretisation-invariant swaps', so-called because the standard no-arbitrage assumption of martingale forward prices is sufficient to derive fair-value swap…
We propose a unified framework for equity and credit risk modeling, where the default time is a doubly stochastic random time with intensity driven by an underlying affine factor process. This approach allows for flexible interactions…
Most models for barrier pricing are designed to let a market maker tune the model-implied covariance between moves in the asset spot price and moves in the implied volatility skew. This is often implemented with a local…
In this article, we consider a 2 factors-model for pricing defaultable bond with discrete default intensity and barrier where the 2 factors are stochastic risk free short rate process and firm value process. We assume that the default event…
Assuming that price of the underlying stock is moving in range bound, the Black-Scholes formula for options pricing supports a separation of variables. The resulting time-independent equation is solved employing different behavior of the…
In this paper we discuss a credit risk model with a pure jump L\'evy process for the asset value and an unobservable random barrier. The default time is the first time when the asset value falls below the barrier. Using the…
This paper develops a continuous-time filtering framework for estimating a hazard rate subject to an unobservable change-point. This framework naturally arises in both financial and insurance applications, where the default intensity of a…
In the present paper we present a finite element approach for option pricing in the framework of a well-known stochastic volatility model with jumps, the Bates model. In this model the asset log-returns are assumed to follow a…
We introduce a new diffusion process Xt to describe asset prices within an economic bubble cycle. The main feature of the process, which differs from existing models, is the drift term where a mean-reversion is taken based on an exponential…
This paper studies the valuation of a class of default swaps with the embedded option to switch to a different premium and notional principal anytime prior to a credit event. These are early exercisable contracts that give the protection…
We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the price…
In this paper, we derive closed-form formulas of first-order approximation for down-and-out barrier and floating strike lookback put option prices under a stochastic volatility model, by using an asymptotic approach. To find the explicit…