Showing 1 - 10 of 26
Volatility swaps and volatility options are financial products written on discretely sampled realized variance. Actively traded in over-the-counter markets, these products are often priced by continuously sampled approximations to simplify the computations. This paper presents an analytical...
Persistent link: https://www.econbiz.de/10010939754
This paper examines the impact of allowing for stochastic volatility and jumps (SVJ) in a structural model on corporate credit risk prediction. The results from a simulation study verify the better performance of the SVJ model compared with the commonly used Merton model, and three sources are...
Persistent link: https://www.econbiz.de/10010939760
To value non-transferable non-hedgeable (NTNH) contingent claims and price executive stock options (ESOs), we use a replication argument to translate portfolios with NTNH derivatives into portfolios of primary assets (only) with stochastic portfolio constraints. By identifying stochastic...
Persistent link: https://www.econbiz.de/10011209189
External barrier options are two-asset options where the payoff is defined on one asset and the barrier is defined on another asset. In this paper, we derive the Laplace transforms of the prices and deltas for the external single and double barrier options where the underlying asset prices...
Persistent link: https://www.econbiz.de/10011209203
We appreciate the thorough review and very useful comments of Cheng, Ibraimi, Leippold, and Zhang. The suggestions have helped significantly to improve our original approximation formula and lead us to provide an exact solution under the Lin and Chang (2010) framework and we thank the editor to...
Persistent link: https://www.econbiz.de/10010870992
A stock loan is a special loan with stocks as collateral, which offers the borrowers the right to redeem the stocks on or before the maturity (Xia and Zhou, 2007; Dai and Xu, 2011). We investigate pricing problems of both infinite- and finite-maturity stock loans under a hyper-exponential jump...
Persistent link: https://www.econbiz.de/10010744193
This paper studies alternative distributions for the size of price jumps in the S&P 500 index. We introduce a range of new jump-diffusion models and extend popular double-jump specifications that have become ubiquitous in the finance literature. The dynamic properties of these models are tested...
Persistent link: https://www.econbiz.de/10010679082
We reveal pitfalls in the hedging of insurance contracts with a minimum return guarantee on the underlying investment, e.g. an external mutual fund. We analyze basis risk entailed by hedging the guarantee with a dynamic portfolio of proxy assets for the funds. We also take account of liquidity...
Persistent link: https://www.econbiz.de/10010779390
We derive semi-analytic solutions for power option prices under the Heston model; specifically, the pricing formula is shown to be valid whenever the power of the underlying asset price has a finite moment. Unlike the majority of stochastic volatility models, there remains a significant problem...
Persistent link: https://www.econbiz.de/10010594899
We introduce a set of improvements which allow the calculation of very tight lower bounds for Bermudan derivatives using Monte Carlo simulation. These tight lower bounds can be computed quickly, and with minimal hand-crafting. Our focus is on accelerating policy iteration to the point where it...
Persistent link: https://www.econbiz.de/10010664654