The Sato process model for option prices is expanded to accomodate credit considerations by incorporating a single jump to default occuring at an independent random time with a Weibull distribution. Explicit formulas for bid and ask prices are derived. Liquidity considerations are captured by...

Conic pricing (or bid and ask pricing) of credit risk shows how counterparty credit risk when conservatively valued at the bid price results in larger CVA than would occur under risk neutral pricing. On the other hand when it comes to the debt valuation adjustment, since it is a liability, it...

Prudent upper and lower valuations from the literature on arbitrage free two price economies provide risk characteristics driving required returns. The risk characteristics assess the risk of price fluctuations. The difference between the upper and lower prudent valuations can be viewed as a...

Complex insurance risks typically have multiple exposures. Options on multiple underliers with a short maturity are employed to hedge this exposure. Hedges are illustrated for GMWBVA accounts invested in the nine sector ETF's of the US economy. The underliers are simulated risk neutrally by...

The paper provides a new hedging methodology permitting systematic hedging choices with wide applications. Dynamic concave bid price, and convex ask price functionals from the recent literature are employed to construct new hedging strategies termed dynamic conic hedging. The primary focus of...

Markets passively accept a convex cone of cash flows that contains the the nonnegative cash flows. Different markets are defined by different cones and conditions are established to exclude the possibility of arbitrage between markets. Operationally these cones are defined by positive...

For data on market prices on 246 cliquets we consider the task of pricing these exotic options using a relatively simple path space subsequently stressed to market implied and then predicted stress levels. An additive process transitioning from a Sato process to a Levy process is formulated and...

Postulating additivity of bid and ask prices for claims comonotone with a long or short stock position, two pricing processes are identified from data on bid and ask prices for options. It is observed that there are two separate put call parity relations in place, with the ask price for call...

Trading strategies are valued using non-linear conditional expectations with respect to non-additive probabilities in a discrete time Markovian context. Non-additive probabilities attain conservatism by exaggerating upwards tail loss events and exaggerating downwards tail gain events. Steady...

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 prespecified skewness and excess kurtosis. Time change and space scale volatilities are calibrated from...