In stochastic volatility models based on time-homogeneous diff usions, we provide a simple necessary and suffi cient condition for the discretely sampled fair strike of a variance swap to converge to the continuously sampled fair strike. It extends Theorem 3.8 of Jarrow, Kchia, Larsson and...

Usually, in the Black-Scholes world, it is assumed that a stock follows a Geometric Brownian motion. The aim of our research is to present Black-Scholes model in a world where the stock is attributed an Arithmetic Brownian motion. Although Arithmetic Brownian motion is simpler due to lack of the...

The Black framework offers a theoretically appealing way to model the term structure and gauge the stance of monetary policy when the zero lower bound of interest rates becomes constraining, but it is time consuming to apply using standard numerical methods. I outline a faster Monte Carlo...

Spanish Abstract: Las simulaciones de Monte Carlo (SMC) son una importante técnica utilizada en finanzas para valuar opciones europeas en general y estrategias de cobertura de riesgo cambiario en particular. Sin embargo, Hull (2012) indica que esta técnica demanda demasiado tiempo de cómputo...

We solve the problem of pricing and hedging Asian-style options on energy with a quadratic risk criterion when trading in the underlying future is restricted. Liquid trading in the future is only possible up to the start of a so-called delivery period. After the start of the delivery period, the...

Operators of biogas plants, who receive their feed-in tariffs according to the German Erneuerbare Energien Gesetz (EEG), possess a basket of real options, whose payoff structure is similar to put options. The underlying is the main input factor of the plant, field crops. This real option to shut...

Purpose – The purpose of this paper is to examine whether futures markets play a dominant role in the price discovery process. The rate of convergence of information from one market to another is analyzed to infer the efficiency of futures as an effective hedging...

We propose a new measure of time-varying tail risk that is directly estimable from the cross section of returns. We exploit firm-level price crashes every month to identify common fluctuations in tail risk across stocks. Our tail measure is significantly correlated with tail risk measures...

This paper investigates model dynamics and risk premia in the short term market for crude oil futures. Stochastic volatility models, with and without jumps, are estimated using data on both futures and option prices. As an economic application we apply the estimated models to the pricing of...

In this study, we focus on the dynamic properties of the risk-neutral liquidity risk premium specific to the sovereign credit default swap (CDS) and bond markets. We show that liquidity risk has a non-trivial role and participates directly to the variation over time of the term structure of...