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An Analytic Approximation of the Implied Risk-Neutral Density of American Multi-Asset Options

Arismendi, Juan C.; Prokopczuk, Marcel - Henley Business School, University of Reading - 2014

The price of a European option can be computed as the expected value of the payoff function under the risk-neutral measure. For American options and path-dependent options in general, this principle can not be applied. In this paper, we derive a model-free analytical formula for the implied...

Persistent link: https://www.econbiz.de/10010933647

An Uncertain Volatility Explanation for Delayed Calls of Convertible Bonds

Yigibasioglu, Ali Bora; Alexandra, Carol - Henley Business School, University of Reading - 2004

Arbitrage-free price bounds for convertible bonds are obtained assuming a stochastic volatility process for the common stock that lies within a band but makes few other assumptions about volatility dynamics. Equity-linked hazard rates, stochastic interest rates and different assumptions about...

Persistent link: https://www.econbiz.de/10005357666

Does model fit matter for hedging? Evidence from FTSE 100 options

Alexander, Carol; Kaeck, Andreas - Henley Business School, University of Reading - 2010

This paper implements a variety of different calibration methods applied to the Heston model and examines their effect on the performance of standard and minimum-variance hedging of vanilla options on the FTSE 100 index. Simple adjustments to the Black-Scholes-Merton model are used as a...

Persistent link: https://www.econbiz.de/10010838055

An exact formula for default swaptions’ pricing in the SSRJD stochastic intensity model

Brigo, Damiano; El-Bachir, Naoufel - Henley Business School, University of Reading - 2007

We develop and test a fast and accurate semi-analytical formula for single-name default swaptions in the context of the shifted square root jump diffusion (SSRJD) default intensity model. The formula consists of a decomposition of an option on a summation of survival probabilities in a summation...

Persistent link: https://www.econbiz.de/10008542369

An analytically tractable time-changed jump-diffusion default intensity model

El-Bachir, Naoufel; Brigo, Damiano - Henley Business School, University of Reading - 2008

We present a stochastic default intensity model where the intensity follows a tractable jump-diffusion process obtained by applying a deterministic change of time to a non mean-reverting square root jump-diffusion process. The model generates higher implied volatilities for default swaptions...

Persistent link: https://www.econbiz.de/10008542370

Pricing Convertible Bonds with Interest Rate, Equity, Credit and FX Risk

Yigitbasioglu, Ali Bora - Henley Business School, University of Reading - 2001

Convertible bonds are hybrid securities whose pricing relies on a set of complex inter-dependencies due to the sensitivity to interest rate risk, underlying (equity) risk, FX risk, and credit risk, and due to the convertible bond’s early exercise American feature. We present a two factor model...

Persistent link: https://www.econbiz.de/10005558313

Credit Derivatives Pricing with a Smile-Extended Jump Stochastic Intensity Model

Brigo, Damiano; El-Bachir, Naoufel - Henley Business School, University of Reading - 2006

We present a two-factor stochastic default intensity and interest rate model for pricing single-name default swaptions. The specific positive square root processes considered fall in the relatively tractable class of affine jump diffusions while allowing for inclusion of stochastic volatility...

Persistent link: https://www.econbiz.de/10005558331

A Cellular Automata Simulation of the 1990s Russian Housing Privatization Decision

Plotnikova, Maria; Dridi, Chokri - Henley Business School, University of Reading - 2010

study builds a case for a cellular automata simulation of household decision-making in the context of housing privatization …

Persistent link: https://www.econbiz.de/10009204966

Exact Moment Simulation using Random Orthogonal Matrices

Alexander, Carol; Ledermann, Walter; Ledermann, Daniel - Henley Business School, University of Reading - 2009

methodology is thus termed ``ROM simulation''. We discuss certain classes of random orthogonal matrices and show how each class … produces samples with different characteristics. ROM simulation has applications to many problems that are resolved using … illustration, we apply ROM simulation to determine the value-at-risk of a stock portfolio. …

Persistent link: https://www.econbiz.de/10008542371

ROM Simulation: Applications to Stress Testing and VaR

Alexander, Carol; Ledermann, Daniel - Henley Business School, University of Reading - 2012

Most banks employ historical simulation for Value-at-Risk (VaR) calculations, where VaR is computed from a lower … faster than MC simulation and which avoids the single-sample bias of historical simulation. Ran- dom orthogonal matrix (ROM …) simulation is a fast matrix-based simulation method that applies directly to an historical sample, or to a parametric …

Persistent link: https://www.econbiz.de/10010838048