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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
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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
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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
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Derivatives Pricing
Gikhman, Ilya I. - 2012
formal arguments which demonstrate that Black and Scholes' approach to derivative pricing is incorrect …
Persistent link: https://www.econbiz.de/10013101188
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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
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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
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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
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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
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A Multidimensional Exponential Utility Indifference Pricing Model with Applications to Counterparty Risk
Henderson, Vicky - 2015
This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model subject to intertemporal default risk, and provides a semigroup approximation for the utility indifference price. The key tool is the splitting method, whose convergence is proved based...
Persistent link: https://www.econbiz.de/10013037486
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A General Framework for the Derivation of Asset Price Bounds : An Application to Stochastic Volatility Option Models
Bondarenko, Oleg - 2015
We present a generalization of Cochrane and Saá-Requejo's good-deal bounds which allows to include in a flexible way the implications of a given stochastic discount factor model. Furthermore, a useful application to stochastic volatility models of option pricing is provided where closed-form...
Persistent link: https://www.econbiz.de/10013037581