If the Black-Scholes model and its extensions were the discoveries of the 70s and 80s, then Value-at-risk (VaR) models are the darlings of the 90s. These models have many uses within an organisation; for example, a risk manager may use VaR to allocate trading limits, senior management for asset...

In this paper we present a new model for pricing and hedging a portfolio of derivatives that takes into account the effect of an extreme movement in the underlying. We make no assumptions about the timing of this 'crash' or the probability distribution of its size, except that we put an upper...

Jump diffusion models have two weaknesses: they don't allow you to hedge and the parameters are very hard to measure. Nobody likes a model that tells you that hedging is impossible (even though that may correspond to common sense) and in the classical jump-diffusion model of Merton the best that...

The modelling of credit risk, credit derivatives and non-hedgeable securities in general is currently in a poor state. Ideas from equity options theory have been adopted for credit risk, but have not been adapted for the peculiarities of this more complex world. This brief paper is a review and...

Intro -- The Money Formula -- Contents -- Acknowledgements -- About the Authors -- Introduction -- 1 Early Models -- Monetary Alchemy -- Gold Standard -- The Systems of Nature -- Rational Mechanics -- Finding Equilibrium -- Intrinsic Value -- 2 Going Random -- Theory of Speculation -- Efficient...