Related papers: Analytical Pricing of Defaultable Bond with Stocha…
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 $T$,…
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…
We price European options in a class of models in which the volatility of the underlying risky asset depends on the short rate of interest. Our study results in an explicit pricing formula that depends on knowledge of a characteristic…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
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…
This paper examines the valuation and hedging of standard equity protection swap (EPS) products proposed by Xu et al.. To account for financial crises and counterparty default risk, we develop pricing frameworks based on Merton's…
In this paper we present a novel approach for firm default probability estimation. The methodology is based on multivariate contingent claim analysis and pair copula constructions. For each considered firm, balance sheet data are used to…
We study the pricing and the hedging of claim {\psi} which depends on the default times of two firms A and B. In fact, we assume that, in the market, we can not buy or sell any defaultable bond of the firm B but we can only trade…
In this paper, we propose the uncertain volatility models with stochastic bounds. Like the regular uncertain volatility models, we know only that the true model lies in a family of progressively measurable and bounded processes, but instead…
In this study, we introduce new estimation methods for the required rate of returns on equity and liabilities of private and public companies using the stochastic dividend discount model (DDM). To estimate the required rate of return on…
The Constant Elasticity of Variance (CEV) model is mathematically presented and then used in a Credit-Equity hybrid framework. Next, we propose extensions to the CEV model with default: firstly by adding a stochastic volatility diffusion…
In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We…
We consider a defaultable asset whose risk-neutral pricing dynamics are described by an exponential L\'evy-type martingale. This class of models allows for a local volatility, local default intensity and a locally dependent L\'evy measure.…
In this work we want to provide a general principle to evaluate the CVA (Credit Value Adjustment) for a vulnerable option, that is an option subject to some default event, concerning the solvability of the issuer. CVA is needed to evaluate…
In this paper, we compare static and dynamic (reduced form) approaches for modeling wrong-way risk in the context of CVA. Although all these approaches potentially suffer from arbitrage problems, they are popular (respectively) in industry…
We present a model for direct semi-parametric estimation of the State Price Density (SPD) implied in quoted option prices. We treat the observed prices as expected values of possible pay-offs at maturity, weighted by the unknown probability…
This paper presents the experimental process and results of SVM, Gradient Boosting, and an Attention-GRU Hybrid model in predicting the Implied Volatility of rolled-over five-year spread contracts of credit default swaps (CDS) on European…
In this work we develop a tractable structural model with analytical default probabilities depending on a random default barrier and possibly random volatility ideally associated with a scenario based underlying firm debt. We show how to…
We provide representations of solutions to terminal value problems of inhomogeneous Black-Scholes equations and studied such general properties as min-max estimates, gradient estimates, monotonicity and convexity of the solutions with…
A standard quantitative method to access credit risk employs a factor model based on joint multivariate normal distribution properties. By extending a one-factor Gaussian copula model to make a more accurate default forecast, this paper…