A Markov chain with an expanding non-uniform grid matching risk-neutral marginal distributions is constructed. Conditional distributions of the chain are in the variance gamma class with pre-specified skewness and excess kurtosis. Time change and space scale volatilities are calibrated from...

With an interest in keeping the cost of carry at acceptable levels for the expression of a positive or negative view on an equity asset over the longer term, a variation to equity default swaps is introduced that fixes the barrier at a given quantile. The barrier level for the stock price then...

In this paper we propose a transform method to compute the prices and Greeks of barrier options driven by a class of Levy processes. We derive analytical expressions for the Laplace transforms in time of the prices and sensitivities of single barrier options in an exponential Levy model with...

Dilip B Madan discusses how even good financial models often fail to perform when applied to real economic data. To overcome market volatility, he suggests, the right model must successfully reduce dimension.

We consider a simple single period economy in which agents invest so as to maximize expected utility of terminal wealth. We assume the existence of three asset classes, namely a riskless asset (the bond), a single risky asset (the stock), and European options of all strikes (derivatives). In...

We discuss a Levy multivariate model for financial assets which incorporates jumps, skewness, kurtosis and stochastic volatility. We use it to describe the behaviour of a series of stocks or indexes and to study a multi-firm, value-based default model. Starting from an independent Brownian...

In this paper we investigate alternative Levy base correlation models that arise from the Gamma, Inverse Gaussian and CMY distribution classes. We compare these models with the basic (exponential) Levy base correlation model and the classical Gaussian base correlation model. For all investigated...

<title>Abstract</title> This paper provides a new market implied calibration based on a moment matching methodology where the moments of the risk-neutral density function are inferred from at-the-money and out-the-money European vanilla option quotes. In particular, we derive a model-independent risk-neutral...

In this paper we discuss moment swaps. These derivatives depend on the realized higher moments of the underlying. A special case is the nowadays popular variance swaps. After introducing moment swaps we discuss how to hedge these derivatives. Moreover, we show how the classical hedge of the...