With the success of variable annuities, insurance companies are piling up large risks in terms of both equity and fixed income assets. These risks should be properly modeled as the resulting dynamic hedging strategy is very sensitive to the modeling assumptions. The current literature has been...

This paper studies the impact of stochastic interest rates for local volatility hybrids. Our research shows that it is possible to explicitly determine the bias between the local volatility of a model with stochastic interest rates and the local volatility of the same model, but with...

Using the Stein numerical method, introduced by El Karoui and Jiao {ElKJ} and El Karoui, Jiao and Kurtz {ElKJK}, we compare, in terms of accuracy and efficiency, the pricing of the basket default swaps (NTDs and CDO Tranches). In the Factor Copula Model framework, we compare the following copula...

The various macro econometrics model for inflation are helpless when it comes to the pricing of inflation derivatives. The only article targeting inflation option pricing, the Jarrow Yildirim model, relies on non observable data. This makes the estimation of the model parameters a non trivial...

In this paper, we revisit the Kalman filter theory. After giving the intuition on a simplified financial markets example, we revisit the maths underlying it. We then show that Kalman filter can be presented in a very different fashion using graphical models. This enables us to establish the...

Current Monte Carlo pricing engines may face computational challenge for the Greeks, because of not only their time consumption but also their poor convergence when using a finite difference estimate with a brute force perturbation. The same story may apply to conditional expectation. In this...

Current Monte Carlo pricing engines may face computational challenge for the Greeks, because of not only their time consumption but also their poor convergence when using a finite difference estimate with a brute force perturbation. The same story may apply to conditional expectation. In this...

This paper presents an efficient methodology for the discrete Asian options consistent with different types of underlying densities, especially non-normal returns as suggested by the empirical literature (Mandelbrot (1963) and Fama (1965)). Based on Fast Fourier Transform, the method is an...

In this paper, we assume that log returns can be modelled by a Levy process. We give explicit formulae for option prices by means of the Fourier transform. We explain how to infer the characteristics of the Levy process from option prices.This enables us to generate an implicit volatility...

Traditional methods for the computation of the Greeks with Monte Carlo simulations converge very slowly for strongly discontinuous payoff options. As a solution, Fournie et al. (1999) and Benhamou (2000) suggested the use of Malliavin weighted scheme especially for options depending on a finite...