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Analytical pricing formulas and Greeks are obtained for European and American basket put options using Mellin transforms. We assume assets are driven by geometric Brownian motion which exhibit correlation and pay a continuous dividend rate.…
We study the forward price dynamics in commodity markets realized as a process with values in a Hilbert space of absolutely continuous functions defined by Filipovi\'c. The forward dynamics are defined as the mild solution of a certain…
Recently, incomplete-market techniques have been used to develop a model applicable to credit default swaps (CDSs) with results obtained that are quite different from those obtained using the market-standard model. This article makes use of…
CDS (credit default swap) contracts that were initiated some time ago frequently have spreads and/or maturities that are not available on the current market of CDSs, and are thus illiquid. This article introduces an incomplete-market…
In this paper we study a spectrally negative L\'evy process which is refracted at its running maximum and at the same time reflected from below at a certain level. Such a process can for instance be used to model an insurance surplus…
We study the stability of several no-arbitrage conditions with respect to absolutely continuous, but not necessarily equivalent, changes of measure. We first consider models based on continuous semimartingales and show that no-arbitrage…
In this note we study the optimal dividend problem for a company whose surplus process, in the absence of dividend payments, evolves as a generalized compound Poisson model in which the counting process is a generalized Poisson process.…
Consider the optimal dividend problem for an insurance company whose uncontrolled surplus precess evolves as a spectrally negative Levy process. We assume that dividends are paid to the shareholders according to admissible strategies whose…
This work presents an exact solution to the generalized Heston model, where the model parameters are assumed to have linear time dependence The solution for the model in expressed in terms of confluent hypergeometric functions.
This paper addresses the question of how an arbitrage-free semimartingale model is affected when stopped at a random horizon. We focus on No-Unbounded-Profit-with-Bounded-Risk (called NUPBR hereafter) concept, which is also known in the…
A stochastic model with hidden discrete Markov processes is constructed to understand the behavior of debtors.
We propose a unified framework for equity and credit risk modeling, where the default time is a doubly stochastic random time with intensity driven by an underlying affine factor process. This approach allows for flexible interactions…
We study the superreplication of contingent claims under model uncertainty in discrete time. We show that optimal superreplicating strategies exist in a general measure-theoretic setting; moreover, we characterize the minimal…
We study the pricing and hedging of derivatives in incomplete financial markets by considering the local risk-minimization method in the context of the benchmark approach, which will be called benchmarked local risk-minimization. We show…
This paper considers options pricing when the assumption of normality is replaced with that of the symmetry of the underlying distribution. Such a market affords many equivalent martingale measures (EMM). However we argue (as in the…
We revisit the problem of pricing options with historical volatility estimators. We do this in the context of a generalized GARCH model with multiple time scales and asymmetry. It is argued that the reason for the observed volatility risk…
We consider option pricing in a regime-switching diffusion market. As the market is incomplete, there is no unique price for a derivative. We apply the good-deal pricing bounds idea to obtain ranges for the price of a derivative. As an…
We investigate the problem of pricing and hedging derivatives of Electricity Futures contract when the underlying asset is not available. We propose to use a cross hedging strategy based on the Futures contract covering the larger delivery…
In some options markets (e.g. commodities), options are listed with only a single maturity for each underlying. In others, (e.g. equities, currencies), options are listed with multiple maturities. In this paper, we provide an algorithm for…
A microeconomic approach is proposed to derive the fluctuations of risky asset price, where the market participants are modeled as prospect trading agents. As asset price is generated by the temporary equilibrium between demand and supply,…