The purpose of the paper consists in developing a formula for quantifying the premium a bank is expected to pay for a fund that provides recapitalization in order to allow orderly failure if the bank is in financial distress. The main finding is that such a premium can be computed as the...

In this paper we develop a one-factor non-affine stochastic volatility option pricing model where the dynamics of the underlying is endogenously determined from micro-foundations. The interaction and herding of the agents trading the underlying asset induce an amplification of the volatility of...

In this article, we generalize the classical Edgeworth series expansion used in the option pricing literature. We obtain a closed-form pricing formula for European options by employing a generalized Hermite expansion for the risk-neutral density. The main advantage of the generalized expansion...