We consider counterparty risk for Credit Default Swaps (CDS) in presence of correlation between default of the counterparty and default of the CDS reference credit. Our approach is innovative in that, besides default correlation, which was taken into account in earlier approaches, we also model...

This paper proposes a pricing model that values convertible bonds with Monte Carlo simulation. The optimal exercise boundaries for the embedded American-style conversion, call, and put options are inferred from the conditional expected value of continuation which is obtained by least-squares...

In this paper, we consider the issue of forecasting the interest-rate term structure and we present a solution. We apply the Extended Kalman Filter (EKF) to the Fong amp; Vasicek model to deal with the issue of computing the hidden stochastic volatility. We also introduce Bollinger bands as a...

Tutorial on valuation of mortgage backed securities and collateralized mortgage obligations, including: - Structure of the mortgage market - Prepayment modeling - OAS analysis - Interest rate modeling - Numerical methods - Parallelization

We present a two-factor stochastic default intensity and interest rate model for pricing single-name default swaptions. The specific positive square root processes considered fall in the relatively tractable class of affine jump diffusions while allowing for inclusion of stochastic volatility...

In this paper we present a new methodology for option pricing. The main idea consists to represent a generic probability distribution function (PDF) via a perturbative expansion around a given, simpler, PDF (typically a gaussian function) by matching moments of increasing order. Because, as...

We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model was already described in the literature. We present a new approach to the problem, based on partial derivative equations, which gives a different...

This paper determines first-passage time distributions with a twofold emphasis on the dynamics of the state variables and interest rate uncertainty. Underlyings follow two-dimensional geometric Brownian motions, Ornstein-Uhlenbeck processes or Poisson jump-diffusion processes, and boundaries are...

This paper reports fairly accurate simulations of insurance-linked securities within an arbitrage-free framework, while accounting for catastrophic events and allowing for stochastic interest rates. Assessing these contingent claims exhibits features of instability rooted in the discontinuity of...

This paper tailors Monte Carlo simulations to the scope of binary options whose underlying dynamics obey jump-diffusion or jump-mean-reverting processes and may not be traded. In the process, we justify the existence of well-defined arbitrage prices notwithstanding a framework of incomplete...