We deal with the valuration and hedging of non path-dependent European options on one or several underlyings in a model of an international economy which allows for both interest rate and exchange rate risk. Using martingale theory we provide a unified and easily applicable approach to pricing...

Suppose that (X(n)) is a finite adapted sequence of d-dimensional random variables defined on some filtered probability space ( Omega, F, ( Fn),P ) . We obtain conditions which are necessary and sufficient for the existence of a probability measure Q equivalent to P ( which we call an equivalent...

Let M(X) be a family of all equivalent local martingale measures for some locally bounded d-dimensional process X, and V be a positive process. Main result of the paper (Theorem 2.1) states that the process V is a supermartingale whatever Q in M(X), if and only if this process admits the...

Assuming constant interest rates Brennan and Schwartz (1976, 1979) obtained the rational insurance premium on an equity-linked insurance contract through the application of the theory of contingent claims pricing. Further considerations with deterministic interest rates have been discussed in...

Starting with observable annually compounded forward rates we derive a term structure model of interest rates. The model relies upon the assumption that a specific set of annually compounded forward rates is log-normally distributed. We derive solutions for interest rate caps and floors as well...

The extension of the Black-Scholes option pricing theory to the valuation of barrier options is reconsidered. Working in the binomial framework of CRR we show how various types of barrier options can be priced either by backward induction or by closed binomial formulas. We also consider...

Alternative ways of introducing uncertainty to the term structure of interest rates are considered. They correspond to the different expectation hypotheses...

We review the continuous-time literature on the so-called direct approach to bond option pricing. Going back to Ball and Torous (1983), this approach models bond price processes directly (i.e. without reference to interest rates or state variable processes) and applies methods that Black and...

This paper presents the one- and the multifactor versions of a term structure model in which the factor dynamics are given by Cox/Ingersoll/Ross (CIR) type "square root" diffusions with piecewise constant parameters. The model is fitted to initial term structures given by a finite number of data...

Ant Colony Optimization is a relatively new meta-heuristic that has proven its quality and versatility on various combinatorial optimization problems such as the traveling salesman problem, the vehicle routing problem and the job shop scheduling problem.(...)