We study the impact of risk-aversion on the valuation of credit derivatives. Using the technology of utility-indifference pricing in intensity-based models of default risk, we analyse resulting yield spreads in multi-name credit derivatives, particularly CDOs. We study first the idealized...

The skew effect in market implied volatility can be reproduced by option pricing theory based on stochastic volatility models for the price of the underlying asset. Here we study the performance of the calibration of the S&P 500 implied volatility surface using the asymptotic pricing theory...

Two major financial market complexities are transaction costs and uncertain volatility, and we analyze their joint impact on the problem of portfolio optimization. When volatility is constant, the transaction costs optimal investment problem has a long history, especially in the use of...

Cover -- MULTISCALE STOCHASTIC VOLATILITY FOR EQUITY, INTEREST RATE, AND CREDIT DERIVATIVES -- Title -- Copyright -- To our families and students -- Contents -- Introduction -- 1 The Black-Scholes Theory of Derivative Pricing -- 1.1 Market Model -- 1.2 Derivative Contracts -- 1.3 Replicating...