This paper introduces a structural credit default model that is based on a hyper-exponential jump diffusion process for the value of the firm. For credit default swap prices and other quantities of interest, explicit expressions for the corresponding Laplace transforms are derived. As an...

In this paper, we examine an exchange economy with a financial market composed of three assets: a share of a stock, an European call option written on the stock, and a riskless bond. The financial market is assumed to be incomplete and the option is not a redundant asset. In such a case the...

This paper proposes an option pricing model which can estimate the market’s expected return and the market’s uncertainty of this return while complying with various complex characteristics of real world markets. First, it is proposed that the market is not homogenous; the market is made up...

This paper proposes an option pricing model which can estimate the market’s expected return and the market’s uncertainty of this return while complying with various complex characteristics of real-world markets. First, it is proposed that the market is not homogenous; the market is made up...

In a tractable stochastic volatility model, we identify the price of the smile as the price of the unspanned risks traded in SPX option markets. The price of the smile reflects two persistent volatility and skewness risks, which imply a downward sloping term structure of low-frequency variance...

In this paper, we propose a new Heston based stochastic volatility model for stock price and option pricing, which not only captures the volatility smile, but also naturally captures the stochastic volatility of volatility. It's more empirically consistent to both historical stock price and...

We introduce a discrete-time model for log-return dynamics with observable volatility and jumps. Our proposal extends the class of Realized Volatility heterogeneous auto-regressive gamma (HARG) processes adding a jump component with time-varying intensity. The model is able to reproduce the...