Merton-type models of pricing corporate bonds based on relatively simple default processes cannot generate credit spreads which replicate empirically observed spreads. This paper presents an analytical valuation model of corporate discount bond prices to address this problem. The main feature of...

Based upon the Fourier series expansion, we propose a simple and easy-to-use approach for computing accurate estimates of Black-Scholes double barrier option prices with time-dependent parameters. This new approach is also able to provide tight upper and lower bounds of the exact barrier option...

In this paper we use the method of images to derive the closed-form formula for the first passage time density of a timed-dependent Ornstein-Uhlenbeck process to a parametric class of moving boundaries. The results are then applied to develop a simple, efficient and systematic approximation...

In this paper we present a Lie-algebraic technique for the valuation of multi-asset financial derivatives with time-dependent parameters. By exploiting the dynamical symmetry of the pricing partial differential equations of the financial derivatives, the new method enables us to derive...

In this paper we apply the Lie-algebraic technique for the valuation of moving barrier options with time-dependent parameters. The value of the underlying asset is assumed to follow the constant elasticity of variance (CEV) process. By exploiting the dynamical symmetry of the pricing partial...

The quot;structural approachquot; to modeling credit risk specifies a stochastic process that the net asset value of the issuing firm is assumed to follow. If firm value falls below a certain quot;default barrier,quot; bankruptcy is triggered and the firm is assumed to default on its vulnerable...

A new Capital Accord (Basel II) proposed by the Basel Committee on Banking Supervision raises the question of how to measure forward credit risk capital charges arising from maturity-mismatched hedges. This article develops a model to measure forward credit risk that is treated as a put option...

The valuation and applications of one-touch double barrier binary options that include features of knock-out, knock-in, European and American style are described. Using a conventional Black-Scholes option-pricing environment, analytical solutions of the options are derived. The relationships...

Based upon the Wei-Norman theorem, this paper presents a Lie-algebraic technique for the pricing of financial derivatives with time-dependent parameters. By exploiting the dynamical symmetry of the pricing partialdifferential equations of the financial derivatives, the new method enables us to...

The square root constant elasticity of variance (CEV) process has been paid little attention in previous research on valuation of barrier options. In this paper we derive analytical option pricing formulae of up-and-out options with this process using the eigenfunction expansion technique. We...