This paper proposes a variant application of the Merton distance-to-default model by employing implied volatility and implied cost of capital to predict defaults. The proposed model's results are compared with predictions obtained from three popular models in different setups. We find that our...

In a model driven by a multi-dimensional local diffusion, we study the behavior of implied volatility {\sigma} and its derivatives with respect to log-strike k and maturity T near expiry and at the money. We recover explicit limits of these derivatives for (T,k) approaching the origin within the...

We propose a novel method for the analytical approximation in local volatility models with Lévy jumps. The main result is an expansion of the characteristic function in a local Lévy model, which is worked out in the Fourier space by considering the adjoint formulation of the pricing problem....