The criterion of minimizing the cumulative hedged returns’ probability of underperforming a benchmark provides a framework for evaluating short-term hedges that are rolled over to produce longer-term hedges. Large deviations theory can be used to either parametrically or nonparametrically...

Monte Carlo simulation has been used to value options since Boyle's seminal paper. Monte Carlo simulation, however, has not been used to its fullest extent for option valuation because of the belief that the method is not feasible for American-style options. This paper demonstrates how to...

This paper compares two distributed computing environments when used to price financial contingent claims with Monte Carlo methods: a PC grid and a scientific computing Linux cluster. The paper also investigates the performances for different distributing strategies. On the basis of our...

The martingale approach to pricing contingent claims can be applied in a multiple state variable model. The idea is used to derive the prices of derivative securities (futures on stock and bond futures, options on stocks, bonds and futures) given a continuous time Gaussian multi-factor model of...

We investigate the effects of margining, a widely-used mechanism for attaching collateral to derivatives contracts, on derivatives trading volume, default risk, and on the welfare in the banking sector. First, we develop a stylized banking sector equilibrium model to develop some basic intuition...

Various methods of option pricing in discrete time models are discussed. The classical risk minimization method often results in negative prices and a natural modification is proposed. Another method of risk minimization using an inductive procedure as in the Cox-Ross-Rubinstein model is also...