In den letzten Jahren hat sich eine Vielzahl von Produkten entwickelt, bei denen der Zahlungszeitpunkt und die Feststellung des Zinssatzes von den natürlichenGewohnheiten des Marktes abweichen. Ein typisches Instrument sind LIBORZahlungen, deren Zinsfestellung nicht am Anfang, sondern am Ende...

In den letzten Jahren hat sich eine Vielzahl von Produkten entwickelt, bei denen der Zahlungszeitpunkt und die Feststellung des Zinssatzes von den natürlichenGewohnheiten des Marktes abweichen. Ein typisches Instrument sind LIBORZahlungen, deren Zinsfestellung nicht am Anfang, sondern am Ende...

The payoff of many credit derivatives depends on the level of credit spreads. In particular, the payoff of credit derivatives with a leverage component is sensitive to jumps in the underlying credit spreads. In the framework of first passage time models we extend the model introduced in...

We investigate the pricing of basket credit derivatives and their hedging with single name credit default swaps (CDS) based on a model for the joint dynamics of the fair CDS spreads. In the situation of the market flow of information being a pure jump filtration, we present an extremely...

When pricing the convexity effect in irregular interest rate derivatives such as, e.g., Libor-in-arrears or CMS, one often ignores the volatility smile, which is quite pronounced in the interest rate options market. This note solves the problem of convexity by replicating the irregular interest...

Cross currency swaps are powerful instruments to transfer assets or liabilities from one currency into another. The market charges for this a liquidity premium, the cross currency basis spread, which should be taken into account by the valuation methodology. We describe and compare two valuation...

The payoff of many credit derivatives depends on the level of credit spreads. In particular, credit derivatives with a leverage component are subject to gap risk, a risk associated with the occurrence of jumps in the underlying credit default swaps. In the framework of first passage time models,...

In Monte Carlo simulation, Latin hypercube sampling (LHS) [McKay et al. (1979)] is a well-known variance reduction technique for vectors of independent random variables. The method presented here, Latin hypercube sampling with dependence (LHSD), extends LHS to vectors of dependent random...

We collect simple and pragmatic exact formulae for the convexity adjustment of irregular interest rate cash flows as Libor-in-arrears or payments of a swap rate (CMS rate) at an irregular date. The results are compared with the results of an approximative approach available in the popular...

We investigate the problem of modeling defaults of dependent credits. In the framework of the class of structural default models we study threshold models where for each credit the underling ability-to-pay process is a transformation of a Wiener processes. We propose a model for dependent...