We present a parsimonious multi-asset Heston model. All single-asset sub-models follow the well-known Heston dynamics and their parameters are typically calibrated on implied market volatilities. We focus on the calibration of the correlation structure between the single-asset marginals in the...

We study the valuation of unit-linked life insurance contracts with surrender guarantees. Instead of solving an optimal stopping problem, we propose a more realistic approach accounting for policyholders' rationality in exercising their surrender option. The valuation is conducted at the...

Many equity-linked life insurance products offer the possibility to surrender policies prematurely. Secondary markets for policies with surrender guarantees influence both policyholders and insurers. We show that insurers increase premiums to adjust for higher surrender rates of customers and...

We investigate the design of optimal share-based incentive contracts by formulating a stochastic differential game between a listed company and a representative manager. The value maximizing company can grant share-based payments to the manager as incentive component of the total salary package...

We develop a two-state regime-switching rational expectation model with the economic states recession and expansion for the valuation of equity-linked life insurance contracts with surrender guarantees. Our valuation model jointly captures the empirically observed macroeconomical...

We introduce a refined tree method to compute option prices using the stochastic volatility model of Heston. In a first step, we model the stock and variance process as two separate trees and with transition probabilities obtained by matching marginal tree moments up to order two against the...

This paper documents nonlinear cross-sectional dependence in the term structure of U.S. Treasury yields and points out risk management implications. The analysis is based on a Kalman filter estimation of a two-factor affine model which specifies the yield curve dynamics. We then apply a broad...

The occurrence and the transmission of large shocks in international equity markets is of essential interest to the study of market integration and financial crises. To this aim, implied market volatility allows to monitor ex-ante risk expectations in different markets. We investigate the...

In decision problems, frictions as well as constraints play an increasingly important role. Especially, optimal timing problems can be affected by potentially “non-rational” behavior of the decision maker which is not incorporated in the standard theory. A relevant problem of this kind is...

We present an approach for modeling dependencies in exponential Lévy market models with arbitrary margins originated from time changed Brownian motions. Using weak subordination of Buchmann et al. (2016), we face a new layer of dependencies, superior to traditional approaches based on pathwise...