In this paper we derive a market value for Guaranteed Annuity Optionusing martingale modeling techniques. Furthermore, we show how to construct a static replicating portfolio of vanillainterest rate swaptions that replicates the Guaranteed Annuity Option. Finally, we illustrate with historical...

We investigate the relationship between the gas spot market and the price of gas storage capacity. Contrary to the common belief, the auction prices for gas storage are mostly affected by the volatility of current market prices rather than by the winter-summer price differences. This paper...

The characteristic functions of many affine jump-diffusion models, such as Heston’s stochastic volatility model and all of its extensions, involve multivalued functions such as the complex logarithm. If we restrict the logarithm to its principal branch, as is done in most software packages,...

When using an Euler discretisation to simulate a mean-reverting square root process, one runs into the problem that while the process itself is guaranteed to be nonnegative, the discretisation is not. Although an exact and efficient simulation algorithm exists for this process, at present this...

At the time of writing this article, Fourier inversion is the computational method of choice for a fast and accurate calculation of plain vanilla option prices in models with an analytically available characteristic function. Shifting the contour of integration along the complex plane allows for...

Using an Euler discretisation to simulate a mean-reverting CEV process gives rise to the problem that while the process itself is guaranteed to be nonnegative, the discretisation is not. Although an exact and efficient simulation algorithm exists for this process, at present this is not the case...

Fourier inversion is the computational method of choice for a fast and accurate calculation of plain vanilla option prices in models with an analytically available characteristic function. Shifting the contour of integration along the complex plane allows for different representations of the...

The characteristic functions of many affine jump-diffusion models, such as Heston's stochastic volatility model and all of its extensions, involve multivalued functions such as the complex logarithm. If we restrict the logarithm to its principal branch, as is done in most software packages, the...

This paper focuses on the relation between worker's productivity and retirement decision. Assuming that productivity follows geometric Brownian motion with drift, there exists such a level of productivity for which it is optimal to retire. The worker buys an insurance, which gives a constant...

We study the dependence between the downside risk of European banks and insurers. Since the downside risk of banks and insurers differs, an interesting question from a supervisory point of view is the risk reduction that derives from diversification within large banks and financial...