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Pricing Bermudan Callable Derivatives with Default, Collateral Margining, Funding and Investment Costs

Amin, Ahsan - 2012

In this research note, we price Bermudan structured derivatives including the consequences of default, collateral … margining, funding and investment costs. We use LSA Monte Carlo method for finding MTM for collateral margining along all … third sweep of LS Monte Carlo to calculate 'final MTM' in which we find the price of the derivative while simultaneously …

Persistent link: https://www.econbiz.de/10013106493

Pricing Derivatives with Counterparty Risk and Collateralization : A Fixed Point Approach

Kim, Jinbeom - 2015

This paper studies a valuation framework for financial contracts subject to reference and counterparty default risks with collateralization requirement. We propose a fixed point approach to analyze the mark-to-market contract value with counterparty risk provision, and show that it is a unique...

Persistent link: https://www.econbiz.de/10013034719

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

Construction and Interpretation of Model-Free Implied Volatility

Andersen, Torben; Bondarenko, Oleg - 2011

The notion of model-free implied volatility (MFIV), constituting the basis for the highly publicized VIX volatility index, can be hard to measure with accuracy due to the lack of precise prices for options with strikes in the tails of the return distribution. This is reflected in practice as the...

Persistent link: https://www.econbiz.de/10014047423

Pricing European and Barrier Options in the Fractional Black-Scholes Market

Necula, Ciprian - 2008

build upon the framework developed in Necula (2007) for the valuation of derivative products in the fractional Black …

Persistent link: https://www.econbiz.de/10014213489

An Orthogonal Series Expansions Method to Hedge and Price European-Type Options

Chan, Ron - 2017

Closed-form pricing formulae and option Greeks are obtained for European-type options using an orthogonal polynomial series -- complex Fourier series. We assume that risky assets are driven by exponential Lévy processes and stochastic volatility models. We provide a succinct error analysis to...

Persistent link: https://www.econbiz.de/10012967806

Option-Based Credit Spreads

Culp, Christopher L. - 2017

We present a novel empirical benchmark for analyzing credit risk using “pseudo firms” that purchase traded assets financed with equity and zero-coupon bonds. By no-arbitrage, pseudo bonds are equivalent to Treasuries minus put options on pseudo-firm assets. Empirically, like corporate...

Persistent link: https://www.econbiz.de/10012972376

Is the Information Obtained from European Options on Equally Weighted Baskets Enough to Determine the Prices of Exotic Derivatives Such as Worst of Options?

Marabel Romo, Jacinto - 2015

In recent years there has been a remarkable growth of multi-asset options. These options exhibit sensitivity to the volatility of the underlying assets, as well as to their correlations. The call versus call is a product commonly used to trade correlation within the inter-dealer broker markets....

Persistent link: https://www.econbiz.de/10013031257

Extending the Black-Scholes Option Pricing Theory to Account for an Option Market Maker's Funding Costs

Lou, Wujiang - 2015

An option market maker incurs funding costs when carrying and hedging inventory. To hedge a net long delta inventory, for example, she pays a fee to borrow stock from the security lending market. Because of haircuts, she posts additional cash margin to the lender which needs to be financed at...

Persistent link: https://www.econbiz.de/10013033978

Asymptotics of Forward Implied Volatility

Jacquier, Antoine (Jack) - 2015

We prove here a general closed-form expansion formula for forward-start options and the forward implied volatility smile in a large class of models, including the Heston stochastic volatility and time-changed exponential Levy models.This expansion applies to both small and large maturities and...

Persistent link: https://www.econbiz.de/10013036196