This paper considers the valuation of a spread call when asset prices are lognormal. The implicit strategy of the Kirk formula is to exercise if the price of the long asset exceeds a given power function of the price of the short asset. We derive a formula for the spread call value, conditional...

Empirical studies on quoted options highlight deviations from the theoretical model of Black and Scholes; this is due to different causes, such as assumptions regarding the price dynamics, markets frictions and investors' attitude toward risk. In this contribution, we focus on this latter issue...

Cut-off grade strategy (COGS) is a concept that directly influences the financial, technical, economical, and environmental issues in relation to the exploitation of a mineral resource. Despite the simple definition of cut-off grade, the COGS problem is one of the complex and complicated...

We evaluate European financial options under continuous cumulative prospect theory. Within this framework, it is possible to model investors’ attitude toward risk, which may be one of the possible causes of mispricing. We focus on probability risk attitudes and consider alternative probability...

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...

This paper considers the realistic modelling of derivative contracts on exchange rates. We propose a stochastic volatility model that recovers not only the typically observed implied volatility smiles and skews for short dated vanilla foreign exchange options but allows one also to price payoffs...

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...

2001 the first version WARRANT-PRO-2 (0.1) has been presented, see Breitner and Burmester (2002), which optimizes cash settlements for European double-barrier options and warrants. From the viewpoint of financial mathematics, some of the boundary conditions of the partial differential...

This paper focuses on evaluating the credit risk of corporate bond in the fixed income market of Taiwan. We apply Vasicek (1977) model into Merton's (1974) option framework and obtain a closed-form solution of the options model. The solution algorithm employs the Newton-Raphson method in...

This paper considers the pricing of European call options written on pure endowment and deferred life annuity contracts, also known as guaranteed annuity options. These contracts provide a guarantee value at maturity of the option. The contract valuation is dependent on stochastic interest rate...