We develop an asymptotic expansion technique for pricing timer options under general stochastic volatility models around small volatility of variance. Closed-form approximation formulas have been obtained for the Heston model and the 3/2-model. The approximation has an easy-to-understand...

We extend Piterbarg's (2010) result on European-style derivative pricing under collateralization by relaxing the assumption of a single unsecured funding rate. Introducing different lending and borrowing rates has the effect of producing non-linear price functionals for general claims. Buyer and...

We extend the model presented in Bonollo et al. by introducing a multiscenario framework that allows for a richer and more realistic specification, including non-static (stochastic) probabilities of default and losses given default. Though more complex from a computational point of view, the...

The price of a CMS based derivative is largely affected by the value of swaption volatilities at extreme strikes. In this article, we propose a very simple procedure for stripping consistently implied volatilities and CMS adjustments from the market quotes of swaption smiles and CMS swap spreads

In the current markets, options with different strikes or maturities are usually priced with different implied volatilities. This stylized fact, which is commonly referred to asfsmile effect, can be accommodated by resorting to specific models, either for pricing exotic derivatives or for...

In this article, we propose a simple interest rate model, which can well accommodate swaption smiles, while recovering market prices of CMS swap spreads. The model is based on a (possibly multi-factor) Gaussian short rate model coupled with parameter uncertainty. Examples of calibration to real...

We introduce a simple extension of a shifted geometric Brownian motion for modelling forward LIBOR rates under their canonical measures. The extension is based on a parameter uncertainty modelled through a random variable whose value is drawn at an infinitesimal time after zero. The shift in the...

We start by describing the major changes that occurred in the quotes of market rates after the 2007 subprime mortgage crisis. We comment on their lost analogies and consistencies, and hint on a possible, simple way to formally reconcile them. We then show how to price interest rate swaps under...