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An Equilibrium Pricing for OTC Derivatives with Collateralization. Application of Economic Premium Principle

Takino, Kazuhiro - 2016

principle initiated by Buhlmann (1980). The derivative markets in our model are over-the-counter (OTC) markets and have … the collateral agreements. We also demonstrate whether our pricing approach is consistent with an another equilibrium … pricing rule in the point of the sensitivity of derivative prices …

Persistent link: https://www.econbiz.de/10012999558

Collateral Choice Option Valuation

Antonov, Alexandre - 2014

Credit Support Annexes (CSAs) that allow multiple currencies as collateral give rise to a collateral choice option in …

Persistent link: https://www.econbiz.de/10013062601

Derivative Pricing with Two Collateral Rates

Henrard, Marc P. A. - 2021

This note analyses derivative pricing in the context of a collateral rate switch during the life of a financial product … or the existence of two overnight rates. In particular we analyse the impact of forward change of collateral, the impact … on OISs when the collateral rate is different from the OIS underlying, and the impact of bilateral swaptions collateral …

Persistent link: https://www.econbiz.de/10013233818

CDO Tranche Analytic Pricing with Subordinator Levy Marshall-Olkin Correlation

Giovannitti, Stefano - 2016

In this paper we present two (semi)-analytic synthetic CDO tranche pricing formulas using a subordinator Levy Marshall-Olkin credit correlation model. These formulas can be easily evaluated in terms of machine computational time, therefore they are particularly suitable for the correlation model...

Persistent link: https://www.econbiz.de/10013001808

Testing Derivatives Pricing Models under Higher-Order Moment Swaps

Doffou, Ako - 2019

This paper aims to test three parametric models in pricing and hedging higher-order moment swaps. Using vanilla option prices from the volatility surface of the Euro Stoxx 50 Index, the paper shows that the pricing accuracy of these models is very satisfactory under four different pricing error...

Persistent link: https://www.econbiz.de/10012889747

The Affine Heston Model with Correlated Gaussian Interest Rates for Pricing Hybrid Derivatives

Grzelak, Lech A. - 2014

In this article we define a multi-factor equity-interest rate hybrid model with non-zero correlation between the stock and interest rate. The equity part is modeled by the Heston model [Heston-1993] and we use a Gaussian multi-factor short rate process [Brigo,Mercurio-2007; Hull-2006]. By...

Persistent link: https://www.econbiz.de/10013070982

Understanding Mortgage Spreads

Boyarchenko, Nina; Fuster, Andreas; Lucca, David O. - 2014

Spreads of agency mortgage-backed securities (MBS) vary significantly in the cross section and over time, but the sources of this variation are not well understood. We document that, in the cross section, MBS spreads adjusted for the prepayment option show a pronounced smile with respect to the...

Persistent link: https://www.econbiz.de/10010404146

Black scholes for portfolios of options in discrete time : the price is right, the hedge is wrong

Peeters, Bas; Dert, Cees; Lucas, André - 2003

Taking a portfolio perspective on option pricing and hedging, we show that within the standard Black-Scholes-Merton framework large portfolios of options can be hedged without risk in discrete time. The nature of the hedge portfolio in the limit of large portfolio size is substantially different...

Persistent link: https://www.econbiz.de/10011334345

Risk Premia in Option Markets

Madan, Dilip B. - 2015

Risk premia are related to price probability ratios or for continuous time pure jump processes the ratios of jump arrival rates under the pricing and physical measures. The variance gamma model is employed to synthesize densities with risk premia seen as the ratio of the three parameters. The...

Persistent link: https://www.econbiz.de/10013018782

Option Pricing in an Investment Risk-Return Setting

Kim, Young Shin - 2019

In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the contract's maturity the contract is perfectly hedged. We...

Persistent link: https://www.econbiz.de/10012865720