We consider portfolios whose returns depend on at least three variables and show the effect of the correlation structure on the probabilities of the extreme outcomes of the portfolio return, using a multivariate binomial approximation. the portfolio risk is then managed by using derivatives. We...

The value of a currency swap, at a future valuation date, is modelled as a function of five stochastic variables. These represent the factors that determine the term structure of interest rates in the two currencies, and the foreign exchange rate between the currencies. The joint-probability...

In this paper, we suggest an efficient method of approximating a general, multivariate lognormal distribution by a multivariate binomial process. There are two important features of such multivariate distributions. First, the state variables may have volatilities that change over time. Second,...

We consider portfolios whose returns depend on at least three variables and show the effect of the correlation structure on the probabilities of the extreme outcomes of the portfolio return, using a multivariate binomial approximation. The portfolio risk is then managed by using derivatives. We...

In this paper, we suggest an efficient method of approximating a general, multivariate lognormal distribution by a multivariate binomial process. There are two features of such multivariate distributions that are of interest. First, the state variables may have volatilities that change over...

The value and hedge ratio of an American-style option are shown to be closely approximated by a simple quadratic formula. The technique requires the estimation of the values and hedge ratios of just two options: a European option and a twice-exercisable option. These can be computed...

In general, the risk of a financial instrument on a future valuation date depends on several stochastic variables. In the case of a currency swap, its value on a future date can be modelled as a function of five stochastic variables. These represent the factors that determine the term structure...

The valuation of American-style bond options involves two important aspects that need to be modeled carefully. First, stochastic interest rates influence the volatility of the price of the bond, the underlying asset, in a complex fashion as the bond approaches maturity, and hence, the...

In general, the risk of a financial instrument on a future valuation date depends on several stochastic variables. In the case of a currency swap, its value on a future date, can be modelled as a function of five stochastic variables. These represent the factors that determine the term structure...