The price of a European option can be computed as the expected value of the payoff function under the risk-neutral measure. For American options and path-dependent options in general, this principle cannot be applied. In this paper, we derive a model-free analytical formula for the implied...

The credit valuation adjustment (CVA) of OTC derivatives is an important part of the Basel III credit risk capital requirements and current accounting rules. Its calculation is not an easy task - not only it is necessary to model the future value of the derivative, but also the probability of...

The pricing of the European cash-settled swaptions is analysed. The standard market formula results are compared to results obtained from different models. Significant discrepancies are observed, justifying the title

We present a Graphics Processing Unit (GPU) parallelization of the computation of the price of exotic cross-currency interest rate derivatives via a Partial Differential Equation (PDE) approach. In particular, we focus on the GPU-based parallel pricing of long-dated foreign exchange (FX)...

If a probability distribution is sufficiently close to a normal distribution, its density can be approximated by a Gram/Charlier Series A expansion. In option pricing, this has been used fit risk-neutral asset price distributions to the implied volatility smile, ensuring an arbitrage-free...

The Libor Market Model (LMM) describes the evolution of a yield curve through equations for a discrete set of forward rates. In the original version, the rate dynamic was log-normal. The rate dynamic has been extended. The main result presented here is a generic approximation that provides an...

The standard approach of evaluating flexible power plants in deregulated markets is by modelling the spark spread. While this takes account of the volatility of electricity prices and cost of gas and CO2, it does not take account of technical costs (such as ramping up and down) and it ignores...

A credit-linked note (CLN) on a tranche of the CDX index (partially) protects the holder against default losses in that tranche. The holder receives a specified redemption amount at note maturity. The note is priced using market spread quotes for a matching CDS on this tranche

It is often argued that Quasi-Monte Carlo Methods (QMC ) only work for problems of low effective dimension that encompass most of financial problems. We will show here some evidence that, with the Sobol construction, they can be suited for problems with high effective dimension in the truncation...