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In this paper the authors investigate the performance of the original and repeated Richardson extrapolation methods for American option pricing by implementing both the original and modified Geske–Johnson approximation formulae. A comprehensive numerical comparison includes alternative...
Persistent link: https://www.econbiz.de/10010867627
AMS classifications: 35R35; 60G40; 65D15; 90C33;
Persistent link: https://www.econbiz.de/10011091365
This paper analyses the robustness of Least-Squares Monte Carlo, a technique recently proposed by Longstaff and Schwartz (2001) for pricing American options. This method is based on least-squares regressions in which the explanatory variables are certain polynomial functions. We analyze the...
Persistent link: https://www.econbiz.de/10005704899
We propose a method for pricing American options whose payoff depends on the moving average of the underlying asset price. The method uses a finite-dimensional approximation of the infinite-dimensional dynamics of the moving average process based on a truncated Laguerre series expansion. The...
Persistent link: https://www.econbiz.de/10010707486
A fast and accurate method for pricing early exercise and certain exotic options in computational finance is presented. The method is based on a quadrature technique and relies heavily on Fourier transformations. The main idea is to reformulate the well-known risk-neutral valuation formula by...
Persistent link: https://www.econbiz.de/10005836659
Persistent link: https://www.econbiz.de/10005537812
We derive a closed-form expression for the bilateral credit valuation adjustment of a credit default swap in presence of simultaneous defaults. We develop our analysis under a default intensity model specified by a class of three-dimensional subordinators, allowing for default dependence through...
Persistent link: https://www.econbiz.de/10011209864
The computation of the bilateral counterparty valuation adjustment for a credit default swap (CDS) contract is in effect the modeling of the default dependence among the investor, the protection seller, and the reference entity. We present a contagion model, where defaults of three parties are...
Persistent link: https://www.econbiz.de/10010781999
We analyze the effects of the financial crisis in credit valuation adjustments (CVA's). Following the arbitrage-free valuation framework presented in Brigo et al. (2009), we consider a model with stochastic Gaussian interest rates and CIR++ default intensities. Departing from previous...
Persistent link: https://www.econbiz.de/10010862560
This paper proposes the use of analytical approximations to price an heterogeneous basket option combining commodity prices, foreign currencies and zero-coupon bonds. The performance of three moment matching approximations is examined: inverse gamma, Edgeworth expansion around the lognormal and...
Persistent link: https://www.econbiz.de/10010934067