Abstract Using the joint characteristic function of equity price and state variables, we can price contingent claims on both equity and VIX consistently. Based on linear approximation of jump size, we show that one factor models implies all VIX future contract of different maturities are...

We discuss efficient pricing methods via a Partial Differential Equation (PDE) approach for long dated foreign exchange (FX) interest rate hybrids under a three-factor multi-currency pricing model with FX volatility skew. The emphasis of the paper is on Power-Reverse Dual-Currency (PRDC) swaps...

Empirical evidence shows that, in equity options markets, the slope of the skew is largely independent of the volatility level. Single-factor stochastic volatility models are not flexible enough to account for the stochastic behavior of the skew. On the other hand, multifactor stochastic...

We propose a non-equidistant Q rate matrix setting formula such that a well-defined continuous time Markov chain can lead to excellent approximations to jump-diffusions with affine or non-affine functional specifications. This approach also accommodates state-dependent jump intensity and jump...

In this article we define a multi-factor equity-interest rate hybrid model with non-zero correlation between the stock and interest rate. The equity part is modeled by the Heston model [Heston-1993] and we use a Gaussian multi-factor short rate process [Brigo,Mercurio-2007; Hull-2006]. By...

This paper proposes a new collection of affine jump-diffusion models for the valuation of VIX derivatives. The models have two distinctive features. First, we allow for a positive correlation between changes in the VIX and in its stochastic volatility to accommodate asymmetric volatility....

Quasi Monte Carlo (QMC) and Global Sensitivity Analysis (GSA) techniques are applied for pricing and hedging representative financial instruments of increasing complexity. We compare standard Monte Carlo (MC) vs QMC results using Sobol' low discrepancy sequences, different sampling strategies,...

We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets, and we show that a large amount of aggregate tail risk is missing from the cost of financial sector crash insurance during the crisis. The difference in costs between...

We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets, and we show that a large amount of aggregate tail risk is missing from the cost of financial sector crash insurance during the crisis. The difference in costs between...