Related papers: A Term Structure Model for Dividends and Interest …

This article is a sequel to [A.H.M.P]. In [A.H.M.P], we develop an explicit formula for pricing European options when the underlying stock price follows a non-linear stochastic delay equation with fixed delays in the drift and diffusion…

This note studies a certain stochastic evolution equation in the space of probability measures, including existence and uniqueness results. A solution of this equation gives rise, in a natural way, to an interest rate term structure model,…

Discount is the difference between the face value of a bond and its present value. I propose an arbitrage-free dynamic framework for discount models, which provides an alternative to the Heath--Jarrow--Morton framework for forward rates. I…

With the reform of interest rate benchmarks, interbank offered rates (IBORs) like LIBOR have been replaced by risk-free rates (RFRs), such as the Secured Overnight Financing Rate (SOFR) in the U.S. and the Euro Short-Term Rate (\euro STR)…

We consider a modification of the dividend maximization problem from ruin theory. Based on a classical risk process we maximize the difference of expected cumulated discounted dividends and total expected discounted additional funding…

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…

Derivative pricing is about cash flow discounting at the riskfree rate. This teaching has lost its meaning post the financial crisis, due to the addition of extra value adjustments (XVA), which also made derivatives pricing and valuation a…

We give a comprehensive review of credit term structure modeling methodologies. The conventional approach to modeling credit term structure is summarized and shown to be equivalent to a particular type of the reduced form credit risk model,…

We study the optimal financing and dividend distribution problem with restricted dividend rates in a diffusion type surplus model where the drift and volatility coefficients are general functions of the level of surplus and the external…

The incorporation of a dividend yield in the classical option pricing model of Black- Scholes results in a minor modification of the Black-Scholes formula, since the lognormal dynamic of the underlying asset is preserved. However, market…

Binomial tree methods (BTM) and explicit difference schemes (EDS) for the variational inequality model of American options with time dependent coefficients are studied. When volatility is time dependent, it is not reasonable to assume that…

We propose an option approach for pricing bond illiquidity that is reminiscent of the celebrated work of Longstaff (1995) on the non-marketability of some non-dividend-paying shares in IPOs. This approach describes a quite common situation…

This paper provides the mathematical foundation for polynomial diffusions. They play an important role in a growing range of applications in finance, including financial market models for interest rates, credit risk, stochastic volatility,…

We study an efficient strategy based on finite elements to value spread options on commodities whose underlying assets follow a dynamic described by a certain class of two-dimensional Levy models by solving their associated partial…

We price European and American exchange options where the underlying asset prices are modelled using a Merton (1976) jump-diffusion with a common Heston (1993) stochastic volatility process. Pricing is performed under an equivalent…

We derive explicit valuation formulae for an exotic path-dependent interest rate derivative, namely an option on the composition of LIBOR rates. The formulae are based on Fourier transform methods for option pricing. We consider two models…

In this paper, we study the dividend strategies for a shareholder with non-constant discount rate in a diffusion risk model. We assume that the dividends can only be paid at a bounded rate and restrict ourselves to the Markov strategies.…

We develop a novel deep learning approach for pricing European options in diffusion models, that can efficiently handle high-dimensional problems resulting from Markovian approximations of rough volatility models. The option pricing partial…

We introduce a novel class of credit risk models in which the drift of the survival process of a firm is a linear function of the factors. The prices of defaultable bonds and credit default swaps (CDS) are linear-rational in the factors.…

In a stochastic volatility framework, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This allows a pricing tool for European-style claims…