Under the internal model approach (IMA) stipulated by Basel II, financial institutions are allowed to develop and employ proprietary internal models to evaluate various risk. However, the flexibility to develop a proprietary model leads to the question of which computing method delivers the most...

This paper derives a pricing model for payment deferred vulnerable options and applies the results to the pricing of vulnerable range accrual notes. The valuation model for vulnerable options takes into account the possibility of the option writer defaulting. However, when the payment date is...