We explore a multi-asset jump-diffusion pricing model, combining a systemic risk asset with several conditionally independent ordinary assets. Our approach allows for analyzing and modeling a portfolio that integrates high-activity security, such as an exchange trading fund (ETF) tracking a...

We present a computationally tractable method for simulating arbitrage free implied volatility surfaces. We illustrate how our method may be combined with a factor model for the implied volatility surface to generate dynamic scenarios for arbitrage-free implied volatility surfaces. Our approach...

The aim of this paper consists of valuating a real biotechnology firm that is based on a portfolio of several drug development projects at different phases. They are patentprotected R&D projects and their values are obtained by implementing an extension of the real options approach in Schwartz...

El clásico modelo de valoración de opciones europeas de Black y Scholes (1973) supone que los retornos logarítmicos de un activo financiero se distribuyen normalmente, no obstante varios estudios empíricos muestran, primero, que esta distribución puede ser asimétrica y tener colas pesadas"...

We present a stochastic default intensity model where the intensity follows a tractable jump-diffusion process obtained by applying a deterministic change of time to a non mean-reverting square root jump-diffusion process. The model generates higher implied volatilities for default swaptions...

Lattice methods are often used to value derivative instruments. Multinomial lattice methods can in principle converge to the true value of the derivative to very high order. In this paper we describe how very high order multinomial lattices can be constructed and implemented when the SDE...

We extend the short rate model of Vasicek (1977) to include jumps in the local mean. Conditions ensuring existence of a unique equivalent martingale measure are given, implying that the model is arbitrage-free and complete. We develop efficient numerical methods for computation of zero coupon...

The computation of the bilateral counterparty valuation adjustment for a credit default swap (CDS) contract is in effect the modeling of the default dependence among the investor, the protection seller, and the reference entity. We present a contagion model, where defaults of three parties are...