In their work, Brigo and Capponi (2010) introduce a numerical approach for calculating credit valuation adjustments (CVA) for credit default swaps (CDS). In contrast to previous research, they consider the default of the party doing the calculation, and its correlation to the defaults of the...

The LIBOR Market Model (LMM or BGM) has become one of the most popular models for pricing interest rate products. It is commonly believed that Monte-Carlo simulation is the only viable method available for the LIBOR Market Model. In this article, however, we propose a lattice (or tree) approach...

Over the last decade, dividends have become a standalone asset class instead of a mere side product of an equity investment. We introduce a framework based on polynomial jump-diffusions to jointly price the term structures of dividends and interest rates. Prices for dividend futures, bonds, and...

We adopt a family of nonparametric Cressie-Read estimators to price options based on relative pricing using the underlying asset returns. We use option models with stochastic volatility and jumps to investigate the ability of each member in this family to price options with different moneynesses...

We develop a new approach to evaluate asset pricing models (APMs) based on Minimum Discrepancy (MD) projections that generalize the Hansen-Jagannathan (HJ, 1997) distance to account for an arbitrary number of moments of asset returns. The Minimum Discrepancy projections correct APMs to become...

If the creditworthiness of a counterparty is a derivative of a commodity price, there is the potential to have right- or wrong-way exposures in respective commodity transaction. Identifying them is important, because otherwise credit costs might be inadequately calculated and wrong incentives...

We develop a new approach to identify model misspecifications based on Minimum Discrepancy (MD) projections that correct asset pricing models with the use of nonlinear functions of basis assets returns. These nonlinear corrections make our method more effective than the Hansen and Jagannathan...

When the pricing kernel is U-shaped, then expected returns of claims with payout on the upside are negative for strikes beyond a threshold, determined by the slope of the U-shaped kernel in its increasing region, and have negative partial derivative with respect to strike in the increasing...

This paper develops a new version of the Hull-White's model of interest rates, in which the volatility of the short term rate is driven by a Markov switching multifractal model. The interest rate dynamics is still mean reverting but the constant volatility of the Brownian motion is replaced by a...