In this paper we present a Markov-Functional hybrid interest rate/foreign exchange model that allows calibration to given market volatility surfaces in both dimensions simultaneously. This is achieved by extending the approach introduced by Fries and Rott by a functional for the foreign exchange...

We present four new methods for approximating the drift in the LIBOR market model when performing very long steps. These are compared with a variety of existing methods, including PPR, Glasserman-Zhao and predictor-corrector. We find that two of them, which use correlation adjustments to better...

Robert C. Merton is the School of Management Distinguished Professor of Finance at Massachusetts Institute of Technology, and the John and Natty McArthur University Professor Emeritus at Harvard University. Merton received the Alfred Nobel Memorial Prize in Economic Sciences in 1997 for a new...

Importance sampling is a promising variance reduction technique for Monte Carlo simulation-based derivative pricing. Existing importance sampling methods are based on a parametric choice of the proposal. This article proposes an algorithm that estimates the optimal proposal non-parametrically...

Derivative instruments : forwards, futures, options, swaps, and structured products / G.D. Koppenhaver -- The derivatives marketplace : exchanges and the over-the-counter market / Sharon Brown-Hruska -- Speculation and hedging / Greg Kuserk -- The social functions of financial derivatives /...