Related papers: Valuation Bound of Tranche Options
We consider the pricing of derivatives in a setting with trading restrictions, but without any probabilistic assumptions on the underlying model, in discrete and continuous time. In particular, we assume that European put or call options…
This article presents a generic model for pricing financial derivatives subject to counterparty credit risk. Both unilateral and bilateral types of credit risks are considered. Our study shows that credit risk should be modeled as American…
We prove that the default times (or any of their minima) in the dynamic Gaussian copula model of Cr{\'e}pey, Jeanblanc, and Wu (2013) are invariance times in the sense of Cr{\'e}pey and Song (2017), with related invariance probability…
In this paper we propose a semi-analytic approach to pricing American options for time-dependent jump-diffusions models with exponential jumps The idea of the method is to further generalize our approach developed for pricing barrier,…
A time-dependent double-barrier option is a derivative security that delivers the terminal value $\phi(S_T)$ at expiry $T$ if neither of the continuous time-dependent barriers $b_\pm:[0,T]\to \RR_+$ have been hit during the time interval…
Is an option to early terminate a swap at its market value worth zero? At first sight it is, but in presence of counterparty risk it depends on the criteria used to determine such market value. In case of a single uncollateralised swap…
This paper considers the difference of stop-loss payoffs where the underlying is a difference of two random variables. The goal is to study whether the comonotonic and countermonotonic modifications of those two random variables can be used…
This paper addresses the challenges of pricing exotic options and structured products, which traditional models often fail to handle due to their inability to capture real-world market phenomena like fat-tailed distributions and volatility…
The collateral choice option gives the collateral posting party the opportunity to switch between different collateral currencies which is well-known to impact the asset price. Quantification of the option's value is of practical importance…
In this paper, we consider the discounted continuous-time Markov decision process (CTMDP) with a lower bounding function. In this model, the negative part of each cost rate is bounded by the drift function, say $w$, whereas the positive…
We propose a model which can be jointly calibrated to the corporate bond term structure and equity option volatility surface of the same company. Our purpose is to obtain explicit bond and equity option pricing formulas that can be…
This paper develops general approaches for pricing various types of American-style Parisian options (down-in/-out, perpetual/finite-maturity) with general payoff functions based on continuous-time Markov chain (CTMC) approximation under…
In the context of dealing with financial risk management problems it is desirable to have accurate bounds for option prices in situations when pricing formulae do not exist in the closed form. A unified approach for obtaining upper and…
We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…
This paper presents a convenient framework for modeling default process and pricing derivative securities involving credit risk. The framework provides an integrated view of credit valuation adjustment by linking distance-to-default,…
Advertising options have been recently studied as a special type of guaranteed contracts in online advertising, which are an alternative sales mechanism to real-time auctions. An advertising option is a contract which gives its buyer a…
We propose a new model for pricing Quanto CDS and risky bonds. The model operates with four stochastic factors, namely: hazard rate, foreign exchange rate, domestic interest rate, and foreign interest rate, and also allows for…
We derive upper and lower bounds on the expectation of $f(\mathbf{S})$ under dependence uncertainty, i.e. when the marginal distributions of the random vector $\mathbf{S}=(S_1,\dots,S_d)$ are known but their dependence structure is…
The paper studies sub and super-replication price bounds for contingent claims defined on general trajectory based market models. No prior probabilistic or topological assumptions are placed on the trajectory space, trading is assumed to…
We show how the prices of options can be determined with the help of double-fractional differential equation in such a way that their inclusion in a portfolio of stocks provides a more reliable hedge against dramatic price drops that the…