This paper shows that Singleton and Umantsev (2002)'s method for swaption pricing in affine models can be simplified and extended to other models. Two alternative methods for approximating the option exercise boundary are introduced: one based on the multivariate Taylor series expansion, and the...

With financial modelling requiring a better understanding of model risk, it is helpful to be able to vary assumptions about underlying probability distributions in an efficient manner, preferably without the noise induced by resampling distributions managed by Monte Carlo methods. This article...

We present a new numerical method to price vanilla options in time-changed Brownian motion models quickly. The method is based on rational function approximations of the Black-Scholes formula. Detailed numerical results are given for a number of widely used models. In particular, we use the...

Libor derivative pricing has changed with the crisis; Libor is no longer one unambiguous curve as a large basis has appeared between different Libor tenors. A previous approach to derivative discounting is reviewed in the light of those changes. The valuation of so-called linear derivatives, the...

It is quite common in option pricing and risk management for Greeks to be computed through finite differences approximation (“bump-and-reprice”), due to simplicity, general applicability and acceptable accuracy (if bumping stepsize is properly selected). However this approach is time...

The implied volatility surface (IVS) is a fundamental building block in computational finance. We provide a survey of methodologies for constructing such surfaces. We also discuss various topics which can influence the successful construction of IVS in practice: arbitrage-free conditions in both...

The standard approach of evaluating flexible power plants in deregulated markets is by modelling the spark spread. While this takes account of the volatility of electricity prices and cost of gas and CO2, it does not take account of technical costs (such as ramping up and down) and it ignores...

Recently academic researchers and practitioners have use the asymptotic expansion method to examine a variety of financial issues under high-dimensional stochastic environments. This methodology is mathematically justified by Watanabe theory (Watanabe, 1987), and Malliavin calculus (Yoshida,...

This paper develops a fast method for the computation of option prices for models whose characteristic function is time-consuming to compute due to the need to solve ordinary differential equations or difference equations numerically, which is the case for a wide class of models of stocks,...

We review popular methods for pricing European options based on the Fourier expansion of the payoff function (iFT method) and the trapezoid rule, and suggest several new efficient variations. The first variation is a group of PMwFT methods (Payoff Modification with Fourier Transform), which...