We analyze model risk for the pricing of barrier options. In contrast to existing literature, this paper is based on an empirical data set of over 40,000 bonus certificates to analyze the real market extent of model risk for traded barrier options instead of purely synthetic options. For this...

In this paper we describe our work on speeding up the Heston stochastic volatility model calibration, a financial application, on GPUs. The Heston volatility model is used extensively across the capital markets to price and measure the market risk of exchange traded financial options. When...

In this paper we consider the optimal stopping problem for general dynamic monetary utility functionals. Sufficient conditions for the Bellman principle and the existence of optimal stopping times are provided. Particular attention is payed to representations which allow for a numerical...

We derive a closed-form expansion of option prices in terms of Black-Scholes prices and higher-order Greeks. We show how the true price of an option less its Black-Scholes price is given by a series of premiums on higher-order risks that are not priced under the Black-Scholes model assumptions....

The binomial model presents a set of properties that make it a suitable approach in order to value the real options, throughout an easy and practical application. This is possible by the adaptation of the valuation principle for non-arbitrage, own of the options pricing theory. However, their...

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...

As a result of the recent financial crises, equity markets have performed poorly in the last five years or so. In consequence, equity long-only strategies have generally been unattractive over this period. This motivates the investigation on whether better performance can be achieved by...

In this paper, we adopt a partial differential equation (PDE) approach to calculate price and risk measures for mortgage backed securities (MBS). The interest rate path-dependency is handled by an augmented state variable with discrete updating. Compared with the Monte Carlo method, valuation...

Many economic and econometric applications require the integration of functions lacking a closed form antiderivative, which is therefore a task that can only be solved by numerical methods. We propose a new family of probability densities that can be used as substitutes and have the property of...