Gaussian copulas are widely used in the industry to correlate two random variables when there is no prior knowledge about the co-dependence between them. The perturbed Gaussian copula approach allows introducing the skew information of both random variables into the co-dependence structure. The...

Weighted Monte Carlo prices exotic options calibrating the probabilities of previously generated paths by a regular Monte Carlo to fit a set of option premiums. When only vanilla call and put options and forward prices are considered, the Martingale condition might not be preserved. This paper...

This paper describes the current taxonomy of model risk, ways for its mitigation and management and the importance of the model validation function in collaboration with other departments to design and implement them.

It is well known that traded foreign exchange forwards and cross currency swaps (CCS) cannot be priced applying cash and carry arguments. This paper proposes a generalized multi-currency pricing and hedging framework that allows the flexibility of choosing the perspective from which funding is...

We consider a simple stochastic differential equation for modeling bubbles in social context. A prime example is bubbles in asset pricing, but similar mechanisms may control a range of social phenomena driven by psychological factors (for example, popularity of rock groups, or a number of...

This paper deals with numerical solutions of maximizing expected utility from terminal wealth under a non-bankruptcy constraint. The wealth process is subject to shocks produced by a general marked point process. The problem of the agent is to derive the optimal insurance strategy which allows...

Using spectral decomposition techniques and singular perturbation theory, we develop a systematic method to approximate the prices of a variety of options in a fast mean-reverting stochastic volatility setting. Four examples are provided in order to demonstrate the versatility of our method....

The detrending moving average (DMA) algorithm is a widely used technique to quantify the long-term correlations of non-stationary time series and the long-range correlations of fractal surfaces, which contains a parameter $\theta$ determining the position of the detrending window. We develop...

We consider a class of auctions (Lowest Unique Bid Auctions) that have achieved a considerable success on the Internet. Bids are made in cents (of euro) and every bidder can bid as many numbers as she wants. The lowest unique bid wins the auction. Every bid has a fixed cost, and once a...

We give an exposition and numerical studies of upper hedging prices in multinomial models from the viewpoint of linear programming and the game-theoretic probability of Shafer and Vovk. We also show that, as the number of rounds goes to infinity, the upper hedging price of a European option...