Interest-rate structured products and over-the-counter derivatives are like an immense, dense jungle that's grown from a small bare patch of earth in 30 years. From virtually nothing in the late 1970s, the notional value of interest-rate contracts reached $458 trillion - about eight times the...

Despite the recent market upheavals, the OTC derivatives markets continue to comprise one of the largest components of the financial markets, with an overall outstanding notional of $547 trillion in December 2008, 70% of which are in interest rate derivatives. As of June 2009, this grew to $605...

The most widely used option pricing model is the Black-Scholes model.We motivate an alternative option pricing model called the Variance Gamma (VG) model and demonstrate its implementation in the Bloomberg system

We review and detail the causes of errors in numerical differentiation, including roundoff error, convexity error, cancellation error and correlated errors. We discuss methods for improving accuracy, including step size selection and smoothing techniques, as well as a number of approaches...

Lecture notes for a short course on FX option valuation. Includes: - Mathematical framework for FX valuation - Handling the smile and term structure for vanilla options (calls and puts): --- Interpolation issues and techniques --- Handling business time --- Handling market conventions - Pricing...

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

The dichotomy between risk analytics and pricing is well known amongst financial practitioners and researchers. For risk analysis, such as computing value at risk and credit exposures, expectations of future values must be computed under the real world measure. For pricing, expectations are...

In line with regulations and common risk management practice, the credit risk of a portfolio is managed via its potential future exposures (PFEs), expected exposures (EEs), and related measures, the expected positive exposure (EPE), effective expected exposure (EEE), and the effective expected...