We consider the problem of reducing the variance of Monte Carlo estimators of multivariate estimation problems by combining the variance reduction techniques Latin hypercube sampling with dependence (LHSD), control variates and importance sampling. Under some standard conditions, the resulting...

A credit-linked note (CLN) on a tranche of the CDX index (partially) protects the holder against default losses in that tranche. The holder receives a specified redemption amount at note maturity. The note is priced using market spread quotes for a matching CDS on this tranche

In this paper, we proposed to present a no-academic model , the SPM, which perform a good 'perfect' calibration of the smile. Between the Black and Scholes and the Local Vol, the SPM was developed a decade ago. In the first part, we present the classic implementation then in a second part we...

We argue that Islamic principles, in particular the avoidance of ribā and gharar should be applied with respect to real economic value rather than to monetary value in terms of conventional currency. In order to reconcile monetary value with economic value, we propose a reference currency...

In this note we derive closed formulas for the quantiles of a class of cumulative distribution functions (CDF) that can be expressed as mixtures. Generally quantiles of mixtures are only computable numerically. In this case, we assume that the support of the component densities are disjoint,...

This paper examines the theoretically obtained prices with values based on temperature data in the Isle of Man and the UK. We have also seen that the simulated temperature trajectories do not appear to include entire seasons where the temperature remains cooler than normal. Anecdotally we have...

Can-do options are bespoke option structures listed on Safex and Yield-X. The JSE is the first exchange in the world to list, trade and clear exotic options. The first exotic was listed on 8 January 2007 with the onset of the financial crisis that played out during 2008. The option was on the...

Local volatility models are widely used to manage many exotic options in a way consistent with available market prices of vanilla options. Once calibrated, a local volatility grid can be used in numerical methods such as PDE or Monte Carlo to price and hedge exotic options consistently with...

We consider the problem of how to price and hedge derivatives on underlyings that trade on exchanges with no overlap in opening hours. For a simple two-stock model we derive the dynamics of closing prices, show how they can be simulated efficiently and what value we should put into pricing...

We analyze the market price of counterparty risk and develop an arbitrage-free pricing valuation framework, inclusive of collateral mitigation. We show that the adjustment is given by the sum of option payoff terms, depending on the netted exposure, i.e. the difference between the on-default...