We present a new model for pricing electricity swaps. Two general factors affect all contracts but unique risk factors affect each contract. General factors are average swap prices and deterministic trend-seasonal components, and unique factors are forward premiums. Innovations follow MNIG...

I document a sizeable bias that might arise when valuing out of the money American options via the Least Square Method proposed by Longstaff and Schwartz (2001). The key point of this algorithm is the regression-based estimate of the continuation value of an American option. If this regression...

We analyze American put options in a hyper-exponential jump-diffusion model. Our contribution is threefold. Firstly, by following a maturity randomization approach, we solve the partial integro-differential equation and obtain a tight lower bound for the American option price. Secondly, our...

By exploiting the flexibility of the Wishart process, we propose an application of this framework to the pricing of Chicago Board Options Exchange (CBOE) volatility index (VIX) options. Our methodology is analytically tractable and yet flexible enough to efficiently price CBOE VIX options. In...

This paper proposes a profit model for spread trading by focusing on the stochastic movement of the price spread and its first hitting time probability density. The model is general in that it can be used for any financial instrument. The advantage of the model is that the profit from the trades...

Aiming to study pricing of long-dated commodity derivatives, this paper presents a class of models within the Heath, Jarrow, and Morton (1992) framework for commodity futures prices that incorporates stochastic volatility and stochastic interest rate and allows a correlation structure between...