Under the internal model approach (IMA) stipulated by Basel II, financial institutions are allowed to develop and employ proprietary internal models to evaluate various risk. However, the flexibility to develop a proprietary model leads to the question of which computing method delivers the most...

Short-term financing, e.g., asset-backed commercial paper (ABCP) or repurchase agreements (repo), was prevalent prior to the 2007-2008 financial crises. Banks funded by short-term debts, however, are exposed to rollover risk as the banks are unable to raise sufficient funds to finance their...

This paper derives a pricing model for payment deferred vulnerable options and applies the results to the pricing of vulnerable range accrual notes. The valuation model for vulnerable options takes into account the possibility of the option writer defaulting. However, when the payment date is...

This article proposes a multi-factor approach to incorporate issuer default risk into basket credit linked note (BCLN) pricing based on the Gaussian copula. The numerical analysis demonstrates that the issuer default risk increases the fair coupon rate. Contradicting the common belief that a...

Chan and Maheu (2002) developed a GARCH-jump mixture model, namely, the GARCH-jump with autoregressive conditional jump intensity (GARJI) model, in which two conditional independent processes, i.e., a diffusion and a compounded Poisson process, are used to describe stock price movements caused...