Related papers: Pricing Variable Annuity Contracts with High-Water…
We take the holistic approach of computing an OTC claim value that incorporates credit and funding liquidity risks and their interplays, instead of forcing individual price adjustments: CVA, DVA, FVA, KVA. The resulting nonlinear…
Value-at-Risk (VaR) is an institutional measure of risk favored by financial regulators. VaR may be interpreted as a quantile of future portfolio values conditional on the information available, where the most common quantile used is 95%.…
Increased penetration of wind energy will make electricity market prices more volatile. As a result, market participants will bear increased financial risks, which impact investment decisions and in turn, makes it harder to achieve…
Economic variables play important roles in any economic model, and sudden and dramatic changes exist in the financial market and economy. For this reason, to price and hedge equity-linked life insurance products, including segregated funds…
Variable annuities with Guaranteed Minimum Withdrawal Benefits (GMWB) entitle the policy holder to periodic withdrawals together with a terminal payoff linked to the performance of an equity fund. In this paper, we consider the valuation of…
We consider the supOU stochastic volatility model which is able to exhibit long-range dependence. For this model we give conditions for the discounted stock price to be a martingale, calculate the characteristic function, give a strip where…
The demand for voluntary insurance against low-probability, high-impact risks is lower than expected. To assess the magnitude of the demand, we conduct a meta-analysis of contingent valuation studies using a dataset of experimentally…
Reliability Options are capacity remuneration mechanisms aimed at enhancing security of supply in electricity systems. They can be framed as call options on electricity sold by power producers to System Operators. This paper provides a…
In this paper we propose a multi-state model for the evaluation of the conversion option contract. The multi-state model is based on age-indexed semi-Markov chains that are able to reproduce many important aspects that influence the…
We present a new numerical method to price vanilla options quickly in time-changed Brownian motion models. The method is based on rational function approximations of the Black-Scholes formula. Detailed numerical results are given for a…
The binomial tree method and the Monte Carlo (MC) method are popular methods for solving option pricing problems. However in both methods there is a trade-off between accuracy and speed of computation, both of which are important in…
Total value adjustment (XVA) is the change in value to be added to the price of a derivative to account for the bilateral default risk and the funding costs. In this paper, we compute such a premium for American basket derivatives whose…
The U.S. electrical grid has undergone substantial transformation with increased penetration of wind and solar -- forms of variable renewable energy (VRE). Despite the benefits of VRE for decarbonization, it has garnered some controversy…
We consider the problem of valuation of American options written on dividend-paying assets whose price dynamics follows a multidimensional exponential Levy model. We carefully examine the relation between the option prices, related partial…
As increasingly popular metrics of worker and institutional quality, estimated value-added (VA) measures are now widely used as dependent or explanatory variables in regressions. For example, VA is used as an explanatory variable when…
We propose a general framework for the simultaneous modeling of equity, government bonds, corporate bonds and derivatives. Uncertainty is generated by a general affine Markov process. The setting allows for stochastic volatility, jumps, the…
We establish innovative liquidity premium measures, and construct liquidity-adjusted return and volatility to model assets with extreme liquidity, represented by a portfolio of selected crypto assets, and upon which we develop a set of…
We construct a binomial model for a guaranteed minimum withdrawal benefit (GMWB) rider to a variable annuity (VA) under optimal policyholder behaviour. The binomial model results in explicitly formulated perfect hedging strategies funded…
This paper proposes a paradigm shift in the valuation of long term annuities, away from classical no-arbitrage valuation towards valuation under the real world probability measure. Furthermore, we apply this valuation method to two examples…
Before the 2008 financial crisis, most research in financial mathematics focused on pricing options without considering the effects of counterparties' defaults, illiquidity problems, and the role of the sale and repurchase agreement (Repo)…