We identify and explain a structural change in the relation between crude oil futures prices across contract maturities. As recently as 2001, near- and long-dated futures were priced as though traded in segmented markets. In 2002, however, the prices of one-year futures started to move more in...

The exercise of a warrant leads to the well-known dilution phenomenon, whose effects have been extensively studied over the last four decades. In contrast, the existing literature has paid inadequate attention to the volatility spillover between stockholders and warrant holders. This...

The pricing formulas for European call and put options under arithmetic Brownian motion (ABM) are derived via risk-neutral valuation using the martingale measure, and checked against the corresponding Black-Scholes-like partial differential equation (PDE). In quite a few limiting cases, the...

Parametric option pricing models are largely used in Finance. These models capture several features of asset price dynamics. However, their pricing performance can be significantly enhanced when they are combined with nonparametric learning approaches that learn and correct empirically the...

We adopt a quadratic approach to the valuation of the option to exchange one asset for another, when the option owner has the right to exercise prior to option expiration. Accurate pricing results are obtained and tested against competitive models in the literature, building on the hypothesis...

We consider the problem of pricing inflation-linked caplets in a Black-Scholes-type framework as well as in the presence of stochastic volatility. By using results on the pricing of forward starting options in Heston's Model on stochastic volatility, we derive closed-form solutions for...

We propose a reduced form model for default that allows us to derive closed-form solutions to all the key ingredients in credit risk modeling: risk-free bond prices, defaultable bond prices (with and without stochastic recovery) and probabilities of survival.We show that all these quantities can...

There has been increasing support in the empirical literature that both the probability of default (PD) and the loss given default (LGD) are correlated and driven by macroeconomic variables. Paradoxically, there has been very little effort from the theoretical literature to develop credit risk...

We develop a new framework for intertemporal portfolio choice when the covariance matrix of returns is stochastic. An important contribution of this framework is that it allows to derive optimal portfolio implications for economies in which the degree of correlation across different industries,...