The current financial crisis motivates the study of correlated defaults in financial systems. In this paper we focus on such a model which is based on Markov random fields. This is a probabilistic model where uncertainty in default probabilities incorporates expert's opinions on the default risk...

Weather derivatives (WD) are different from most financial derivatives because the underlying weather cannot be traded and therefore cannot be replicated by other financial instruments. The market price of risk (MPR) is an important parameter of the associated equivalent martingale measures used...

Weather derivatives (WD) are different from most financial derivatives because the underlying weather cannot be traded and therefore cannot be replicated by other financial instruments. The market price of risk (MPR) is an important parameter of the associated equivalent martingale measures used...

This paper presents an analytic approximation for the pricing dynamics of spark spread options in terms of Fourier transforms. We propose to model the spark spread, that is, the price difference of electricity and gas, directly using a mean-reverting model with diffusion and jumps. The model is...

We derive the density process of the minimal entropy martingale measure in the stochastic volatility model proposed by Barndorff-Nielsen and Shephard [2]. The density is represented by the logarithm of the value function for an investor with exponential utility and no claim issued, and a...

We develop a general approach to portfolio optimization in futures markets. Following the Heath–Jarrow–Morton (HJM) approach, we model the entire futures price curve at once as a solution of a stochastic partial differential equation. We also develop a general formalism to handle portfolios...

This paper presents an analytic approximation for the pricing dynamics of spark spread options in terms of Fourier transforms. We propose to model the spark spread, that is, the price difference of electricity and gas, directly using a mean-reverting model with diffusion and jumps. The model is...