Related papers: Cheapest-to-Deliver Collateral: A Common Factor Ap…
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…
This paper introduces a novel stochastic model for credit spreads. The stochastic approach leverages the diffusion of default intensities via a CIR++ model and is formulated within a risk-neutral probability space. Our research primarily…
Variational inference has recently emerged as a popular alternative to the classical Markov chain Monte Carlo (MCMC) in large-scale Bayesian inference. The core idea is to trade statistical accuracy for computational efficiency. In this…
Barrier options are one of the most widely traded exotic options on stock exchanges. In this paper, we develop a new stochastic simulation method for pricing barrier options and estimating the corresponding execution probabilities. We show…
Pricing and hedging exotic options using local stochastic volatility models drew a serious attention within the last decade, and nowadays became almost a standard approach to this problem. In this paper we show how this framework could be…
This paper provides a characterization of all possible dependency structures between two stochastically ordered random variables. The answer is given in terms of copulas that are compatible with the stochastic order and the marginal…
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…
The determination of acceptability prices of contingent claims requires the choice of a stochastic model for the underlying asset price dynamics. Given this model, optimal bid and ask prices can be found by stochastic optimization. However,…
Diffusion in a linear potential in the presence of position-dependent killing is used to mimic a default process. Different assumptions regarding transport coefficients, initial conditions, and elasticity of the killing measure lead to…
In this article, a compact finite difference method is proposed for pricing European and American options under jump-diffusion models. Partial integro-differential equation and linear complementary problem governing European and American…
People often face trade-offs between costs and benefits occurring at various points in time. The predominant discounting approach is to use the exponential form. Central to this approach is the discount rate, a unique parameter that…
We propose a new class of extreme-value copulas which are extreme-value limits of conditional normal models. Conditional normal models are generalizations of conditional independence models, where the dependence among observed variables is…
We propose Monte Carlo calibration algorithms for three models: local volatility with stochastic interest rates, stochastic local volatility with deterministic interest rates, and finally stochastic local volatility with stochastic interest…
We present an option pricing formula for European options in a stochastic volatility model. In particular, the volatility process is defined using a fractional integral of a diffusion process and both the stock price and the volatility…
Derivative traders are usually required to scan through hundreds, even thousands of possible trades on a daily basis. Up to now, not a single solution is available to aid in their job. Hence, this work aims to develop a trading…
We revisit the classic Cournot model and extend it to a two-echelon supply chain with an upstream supplier who operates under demand uncertainty and multiple downstream retailers who compete over quantity. The supplier's belief about retail…
Collaborative recommendation is an information-filtering technique that attempts to present information items that are likely of interest to an Internet user. Traditionally, collaborative systems deal with situations with two types of…
Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between…
Multiscale stochastic volatility models have been developed as an efficient way to capture the principle effects on derivative pricing and portfolio optimization of randomly varying volatility. The recent book Fouque, Papanicolaou, Sircar…
We show how the cost of funding the collateral in a particular set up can be equal to the Bilateral Valuation Adjustment with the "funded" probability of default, leading to the definition of a Funded Bilateral Valuation Adjustment (FBVA).…