We propose an efficient method to evaluate callable and putable bonds under a wide class of interest rate models, including the popular short rate diffusion models, as well as their time changed versions with jumps. The method is based on the eigenfunction expansion of the pricing operator....

This paper proposes a new approach to solve finite-horizon optimal stopping problems for a class of Markov processes that includes one-dimensional diffusions, birth-and-death (BD) processes, and jump-diffusions and continuous-time Markov chains obtained by time changing diffusions and BD...

This paper studies subordinate Ornstein-Uhlenbeck (OU) processes, i.e., OU diffusions time changed by L´evy subordinators. We construct their sample path decomposition, show that they possess mean-reverting jumps, study their equivalent measure transformations, and the spectral representation...

This paper develops the procedure of multivariate subordination for a collection of independent Markov processes with killing. Starting from d independent Markov processes Xⁱ with killing and an independent d-dimensional time change T, we construct a new process by time changing each of the...

Equity default swaps (EDS) are hybrid credit-equity products that provide a bridge from credit default swaps (CDS) to equity derivatives with barriers. This paper develops an analytical solution to the EDS pricing problem under the Jump-to-Default Extended Constant Elasticity Variance Model...

The present paper introduces a jump-diffusion extension of the classical diffusion default intensity model by means of subordination in the sense of Bochner. We start from the bi-variate process of the diffusion state variable and default indicator process (X,D) in the diffusion intensity model...

In the Black-Scholes-Merton model, as well as in more general stochastic models in finance, the price of an American option solves a parabolic variational inequality. When the variational inequality is discretized, one obtains a linear complementarity problem that must be solved at each time...