It is commonly accepted that Commodities futures and forward prices, in principle, agree under some simplifying assumptions. One of the most relevant assumptions is the absence of counterparty risk. Indeed, due to margining, futures have practically no counterparty risk. Forwards, instead, may...

This paper proposes a pricing model that values convertible bonds with Monte Carlo simulation. The optimal exercise boundaries for the embedded American-style conversion, call, and put options are inferred from the conditional expected value of continuation which is obtained by least-squares...

In this paper, we consider the issue of forecasting the interest-rate term structure and we present a solution. We apply the Extended Kalman Filter (EKF) to the Fong amp; Vasicek model to deal with the issue of computing the hidden stochastic volatility. We also introduce Bollinger bands as a...

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

We present a two-factor stochastic default intensity and interest rate model for pricing single-name default swaptions. The specific positive square root processes considered fall in the relatively tractable class of affine jump diffusions while allowing for inclusion of stochastic volatility...

This paper provides a numerical approach based on a Monte Carlo simulation for valuing dynamic capital budgeting problems with many embedded real options dependent on numerous state variables. We propose a way of decomposing a complex capital budgeting problem with many options into a set of...

This paper reports fairly accurate simulations of insurance-linked securities within an arbitrage-free framework, while accounting for catastrophic events and allowing for stochastic interest rates. Assessing these contingent claims exhibits features of instability rooted in the discontinuity of...

Hull and White extend Ho and Lee's no-arbitrage model of the short interest rate to include mean reversion. This addition eliminates the problem of negative interest rates and has found wide application. To implement their model, Hull and White employ a sequential search process to identify the...

This paper determines first-passage time distributions with a twofold emphasis on the dynamics of the state variables and interest rate uncertainty. Underlyings follow two-dimensional geometric Brownian motions, Ornstein-Uhlenbeck processes or Poisson jump-diffusion processes, and boundaries are...

We derive representations for forward sensitivities (also known as future sensitivities) in a Monte-Carlo simulation suitable for backward and forward differentiation. We compare the performance of the two approaches.The calculation of all forward sensitivities of a Monte-Carlo simulation with n...