We analyze the specifications of option pricing models based on time-changed Levy processes. We classify option pricing models based on the structure of the jump component in the underlying return process, the source of stochastic volatility, and the specification of the volatility process...

We analyze the specifications of option pricing models based on time-changed Levy processes. We classify option pricing models based on the sucture of the jump component in the underlying return process, the source of stochastic volatility, and the specification of the volatility process itself....

In this paper, we present a new method for pricing and hedging American options along with an efficient implementation procedure. The proposed method is efficient and accurate in computing both option values and various option hedge parameters. We demonstrate the computation accuracy and...

We present a cash-flow based model of corporate debt valuation that incorporates two novel features. First, we allow for the separation and optimal determination of the firm's debt-service and dividend policies; in particular, the firm is allowed to maintain cash reserves to meet future debt...

In this paper, we propose an alternative approach for pricing and hedging non-standard American options. In principle, the proposed approach applies to any kind of American-style contract for which the payoff function has a Markovian representation in the state space. Specifically, we obtain an...

In this paper, we propose an alternative approach for pricing and hedging Americanbarrier options. Specifically, we obtain an analytic representation for the value and hedge parameters of barrier options, using the decomposition technique of separating the European option value from the early...

Recent work has suggested that strategic underperformance of debt-service obligations by equity holders can resolve the gap between observed yield spreads and those generated by Merton (1974)-style models. We show that this is not quite correct. The value of the option to underperform on...

No consensus has yet emerged from the existing credit risk literature on how much of the observed corporate-Treasury yield spreads can be explained by credit risk. In this paper, we propose a new calibration approach based on historical default data and show that one can indeed obtain consistent...

In this paper, we examine the dynamic behavior of credit spreads on corporate bond portfolios. We propose an econometric model of credit spreads that incorporates portfolio rebalancing, the near unit root property of spreads, the autocorrelation in spread changes, the ARCH conditional...

We present a cash flows based model of corporate debt valuation that incorporates two novel features. First, we allow for the separation and optimal determination of the firm's debt-service and dividend policies; in particular, the rm is allowed to maintain cash reserves to meet future debt...