This paper develops a closed form risk-neutral valuation model for pricing Europeanstyle options when the underlying has a mixture of transformed-normaldistributions. Specifically, we introduce the mixture of g distributions, which containsthe mixture of normal and lognormal distributions as a...

The gamma class of distributions encompasses several important distributionseither as special or limiting cases, or through simple transformations. In this paper,we established the link between the real and the risk neutral distributions, andprovided a formal proof for the existence of the risk...

This article studies four transform pricing methods in the context of generalequilibrium (GE) framework. The four methods, viz. the Esscher transform, indifferencepricing, the Wang transform, and the standard deviation loading, arepopular among actuarial literature and practice. The transform...

In this paper we analyse the comparative pricing of vanilla and GDP linkedsovereign debt. The key feature of GDP linked bonds is that their cashflowscoupons,principal or both-are linked to the evolution of the country’s nationalincome. While it has long been argued that indexing debt to...

Forbes and Rigobon (2002) claim there was no contagion among international stock markets duringthe 1997 Asian crisis, with contagion being defined as an increase in dependence. We revisit thisissue using a more robust methodology based on copula. After controlling for heteroskedasticitywith the...

In this paper we analyze the source and magnitude of marketing gains from selling structured debtsecurities at yields that reflect only their credit ratings, or specifically at yields on equivalently ratedcorporate bonds. We distinguish between credit ratings that are based on probabilities of...

The recent financial crisis has accentuated the fact that extreme outcomes have been overlookedand not dealt with adequately. While extreme value theories have existed for a long time, themultivariate variant is difficult to handle in the financial markets due to the prevalentheteroskedasticity...

This paper tests the co-terminal swap market model (SMM) pricing and hedging performance on Bermudan swaptions. To our knowledge, the drift for SMM is derived explicitly for the first time here, and the procedures for calibration and simulation using a collection of forward swap rates are also...

In this paper, we compare two one-factor short rate models: the Hull White model and the Black-Karasinski model. Despite their inherent shortcomings the short rate models are being used quite extensively by the practitioners for risk-management purposes. The research, as part of students'...