Related papers: Evaluation of equity-based debt obligations
We review the utility-based valuation method for pricing derivative securities in incomplete markets. In particular, we review the practical approach to the utility-based pricing by the means of computing the first order expansion of…
The main purpose of this work is the derivation of a functional partial differential equation (FPDE) for the calculations of equity-linked insurance policies, where the payment stream may depend on the whole past history of the financial…
In this paper, we consider the problem of optimization of a portfolio consisting of securities. An investor with an initial capital, is interested in constructing a portfolio of securities. If the prices of securities change, the investor…
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…
In this letter, I consider the issue of pricing risky debt by following Merton's approach. I generalize Merton's results to the case where the interest rate is modeled by the CIR term structure. Exact closed forms are provided for the risky…
American options are financial instruments that can be exercised at any time before expiration. In this paper we study the problem of pricing this kind of derivatives within a framework in which some of the properties --volatility and…
The inclusion of DVA in the fair-value of derivative transactions has now become standard accounting practice in most parts of the world. Furthermore, some sophisticated banks are including an FVA (Funding Valuation Adjustment), but since…
This article presents FVA and CVA of a bilateral derivative in a coherent manner, based on recent developments in fair value accounting and ISDA standards. We argue that a derivative liability, after primary risk factors being hedged,…
In this paper, within the framework of uncertainty theory, the valuation of equity warrants is investigated. Different from the methods of probability theory, the equity warrants pricing problem is solved by using the method of uncertain…
We study a multi-dimensional optimal execution problem in illiquid markets with both instantaneous and persistent price impact and stochastic resilience. In our model the value function can be described by a multi-dimensional backward…
This paper presents a novel and direct approach to price boundary and final-value problems, corresponding to barrier options, using forward deep learning to solve forward-backward stochastic differential equations (FBSDEs). Barrier…
We consider the utility maximization problem for a general class of utility functions defined on the real line. We rely on existing results which reduce the problem to a coupled forward-backward stochastic differential equation (FBSDE) and…
Bayesian optimization is a powerful optimization tool for problems where native first-order derivatives are unavailable. Recently, constrained Bayesian optimization (CBO) has been applied to many engineering applications where constraints…
In this paper, we present a probabilistic numerical method for a class of forward utilities in a stochastic factor model. For this purpose, we use the representation of dynamic consistent utilities with mean of ergodic Backward Stochastic…
We develop a quantum algorithm to price discretely monitored lookback options in the Black-Scholes framework using imaginary time evolution. By rewriting the pricing PDE as a Schrodinger-type equation, the problem becomes the imaginary time…
The purpose of this article is to introduce, analyze and compare two performance participation methods based on a portfolio consisting of two risky assets: Option-Based Performance Participation (OBPP) and Constant Proportion Performance…
Option pricing, a fundamental problem in finance, often requires solving non-linear partial differential equations (PDEs). When dealing with multi-asset options, such as rainbow options, these PDEs become high-dimensional, leading to…
This paper considers the modelling of collateralized debt obligations (CDOs). We propose a top-down model via forward rates generalizing Filipovi\'c, Overbeck and Schmidt (2009) to the case where the forward rates are driven by a finite…
We study how transaction cost affects to the equilibrium return and optimal stock holdings in equilibrium. To this end, we develop a continuous-time risk-sharing model where heterogenous agents trade toward terminal target holdings subject…
This paper considers the pricing of equity-linked life insurance contracts with death and survival benefits in a general model with multiple stochastic risk factors: interest rate, equity, volatility, unsystematic and systematic mortality.…