The study considers a stochastic local volatility model with domestic and foreign stochastic interest rates and identifies a bias with respect to the deterministic local volatility with deterministic rates. Relating the local volatility of the model to that of the forward price, the study...

The causal relationship between atmospheric CO2 concentrations and global temperature is well established, but the degree of sensitivity of future temperature rise to both existing levels of CO2 and continued carbon emissions is still subject to a high degree of uncertainty. Governments have...

To capture the extra returns embedded in the tails of the market distributions, the literature focused on adding stochastic processes to the diffusion coefficient of the asset prices or even jumps to the asset prices as the drift was forced to match the risk-free rate. However, if we assume that...

According to the World Economic and Social Survey 2009, the review of available estimates of mitigation and adaptation costs suggests that additional annual total investments in developing countries could be upwards of $1 trillion per year. Given the limited ability of developing countries to...

Natural hazard events in 2010 and 2011 such as the eruption of the volcano Eyjafjallajokull on Iceland, the heatwave in Russia, the extreme floods in northeastern Australia, and more recently the earthquake followed by a tsunami at Fukushima in Japan demonstrated the vulnerability of the...

The only thing one can say about financial markets is that parsimonious information on option prices is available in time and space, and that we can only use the No-Dominance law (or stronger version of No-Arbitrage) to account for it. Thus, one requires a consistent model to assess relative...

We describe a single parametric model for the entire volatility surface with interpolation and extrapolation technique generating a smooth and robust implied volatility surface without arbitrage in space and time. It is used for marking option prices on indices and single stocks as well as for...

The implied volatility surface being a mapping from Black-Scholes prices, necessary and sufficient conditions for the surface to be free from static arbitrage must be defined in terms of the properties and limits of the Black-Scholes formula. Acknowledging this argument, we develop a parametric...

Dealing with a new topic around the climate change finance, we present the carbon market and its mechanism, focussing on the link between the EUA and the CER markets as well as explaining the challenges of carbon regulation and the economy of primary and secondary CERs. Assuming polluting...

Financial time series exhibit multifractal scaling behaviour indicating a complex behaviour with long-range time correlations manifested on different intrinsic time scales. Such a behaviour typically points to the presence of recurrent economic cycles, crises, large fluctuations, and other...