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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)…
Display advertising has traditionally been sold via guaranteed contracts -- a guaranteed contract is a deal between a publisher and an advertiser to allocate a certain number of impressions over a certain period, for a pre-specified price…
In this article we consider combinatorial markets with valuations only for singletons and pairs of buy/sell-orders for swapping two items in equal quantity. We provide an algorithm that permits polynomial time market-clearing and -pricing.…
This paper studies the stochastic modeling of market drawdown events and the fair valuation of insurance contracts based on drawdowns. We model the asset drawdown process as the current relative distance from the historical maximum of the…
In this paper we study the pricing and hedging of structured products in energy markets, such as swing and virtual gas storage, using the exponential utility indifference pricing approach in a general incomplete multivariate market model…
Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of…
Computational efficiency is essential for enhancing the accuracy and practicality of pricing complex financial derivatives. In this paper, we discuss Isogeometric Analysis (IGA) for valuing financial derivatives, modeled by two nonlinear…
In this paper incomplete-information models are developed for the pricing of securities in a stochastic interest rate setting. In particular we consider credit-risky assets that may include random recovery upon default. The market…
We develop a novel framework for computing the total valuation adjustment (XVA) of a European claim accounting for funding costs, counterparty credit risk, and collateralization. Based on no-arbitrage arguments, we derive the nonlinear…
In this paper, we present a novel approach to solving the American put options pricing model by hugely relying on a front-fixing Crank-Nicolson finite difference method. Since the American put option pricing model is a widely used financial…
Partial differential equations sometimes have critical points where the solution or some of its derivatives are discontinuous. The simplest example is a discontinuity in the initial condition. It is well known that those decrease the…
This paper develops a model-free framework for static fixed-income pricing and the replication of liability cash flows. We show that the absence of static arbitrage across a universe of fixed-income instruments is equivalent to the…
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…
In this paper is investigated the pricing problem of options on bonds with credit risk based on analysis on two kinds of solving problems for the Black-Scholes equations. First, a solution representation of the Black-Scholes equation with…
We consider the optimal investment problem when the traded asset may default, causing a jump in its price. For an investor with constant absolute risk aversion, we compute indifference prices for defaultable bonds, as well as a price for…
Financial options are contracts that specify the right to buy or sell an underlying asset at a strike price by an expiration date. Standard exchanges offer options of predetermined strike values and trade options of different strikes…
We introduce a criterion how to price derivatives in incomplete markets, based on the theory of growth optimal strategy in repeated multiplicative games. We present reasons why these growth-optimal strategies should be particularly relevant…
In this article we present a new approach to the numerical valuation of derivative securities. The method is based on our previous work where we formulated the theory of pricing in terms of tradables. The basic idea is to fit a finite…
In the present paper we fill an essential gap in the Convertible Bonds pricing world by deriving a Binary Tree based model for valuation subject to credit risk. This model belongs to the framework known as Equity to Credit Risk. We show…
We study the pricing and hedging of European spread options on correlated assets when, in contrast to the standard framework and consistent with imperfect liquidity markets, the trading in the stock market has a direct impact on stocks…