An approximate solution to the American put value is proposed and implemented numerically. Relaxation techniques enable the critical price to be determined with high accuracy. The method uses a modification of the quadratic approximation of MacMillan and Barone-Adesi and Whaley which gives an...

Over the years a number of two-factor interest rate models have been proposed that have formed the basis for the valuation of interest rate contingent claims. This valuation equation often takes the form of a partial differential equation that is solved using the finite difference approach. In...

type="main" xml:lang="en" <p>VaR (value-at-risk) estimates are currently based on two main techniques: the variance-covariance approach or simulation. Statistical and computational problems affect the reliability of these techniques. We illustrate a new technique – filtered historical simulation...</p>

We want to assess the relationship between the equity and the debt cost of capital. Using a verysimple dividend discount model we compute the implied discount rate and we compare it with thecorresponding premium on the corporate credit default swap using a cointegration approach. Wedemonstrated...

We provide a new method to derive the state price density per unit probabilitybased on option prices and GARCH model. We derive the risk neutraldistribution using the result in Breeden and Litzenberger (1978) and thehistorical density adapting the GARCH model of Barone-Adesi, Engle, andMancini...

We propose a new method for pricing options based on GARCH models with filtered historical innovations. In an incomplete market framework, we allow for different distributions of historical and pricing return dynamics, which enhances the model's flexibility to fit market option prices. An...

The quadratic form of the covariance-co-skewness model by Kraus and Litzenberger and arbitrage pricing theory are used for an empirical investigation of market equilibrium with skewed seecurity returns. Empirical tests similar to the ones in Black-Jensen-Scholes and Gibbons are discussed. The...

It is difficult to compute Value-at-Risk (VaR) using multivariate models able to take into account the dependence structure between large numbers of assets and being still computationally feasible. A possible procedure is based on functional gradient descent (FGD) estimation for the volatility...