ABSTRACT One option‐pricing problem that has hitherto been unsolved is the pricing of a European call on an asset stochastic volatility. This paper examines this problem. The option price determined in series form for case which volatility independent stock price. Numerical solutions are also produced correlated with It found Black‐Scholes frequently overprices options and degree overpricing increases time to maturity.

This article shows that the one-state-variable interest-rate models of Vasicek (1977) and Cox, Ingersoll, Ross (1985b) can be extended so they are consistent with both current term structure interest rates either volatilities all spot or forward rates. The model is shown to very tractable analytically. compares option prices obtained using those a number other models.

Many of the new credit derivative products are based on default experience for a portfolio financial instruments. These include collateralized debt obligations (CDOs) and similar tranched products, "n-th to swaps." Devising good risk models single-name credits has been challenging enough, but applying them portfolios introduces much greater complexity, because critical importance correlation. The most common valuation technology is Monte Carlo simulation, with many bonds, each which subject...

This paper compares different approaches to developing arbitrage-free models of the term structure. It presents a numerical procedure that can be used construct wide range one-factor short rate are both Markov and consistent with initial structure interest rates.

One of the fastest growing areas both derivatives trading and research right now is in contracts based on credit risk. The default swap a standard instrument, offering possibility hedging against by issuer an underlying bond. Several existing valuation methodologies differ their assumptions about payoff case event. In this article, Hull White present approach realistic assumption that amount bondholders will claim difference between bond&'s post-default market value its face value. An...

“In the Fall 2000, Journal of Derivatives, Hull and White presented a model for pricing credit default swaps based on realistic assumption that in bondholders will claim difference between bond&9s post-default market value its face value. An important feature approach is use prices set bonds from same issuer to obtain term structure risk-neutral implied probabilities. This article extends significantly allow existence multiple correlated risks. Correlations are either when swap subject...

This paper proposes a procedure for using GARCH or exponentially weighted moving average model in conjunction with historical simulation when computing value-at-risk. It involves adjusting data on each market variable to reflect the difference between volatility of and its current volatility. The authors compare approach 9 years daily 12 exchange rates 5 stock indices more commonly used approaches show that it is substantial improvement.

This paper suggests a modification to the explicit finite difference method for valuing derivative securities. The ensures that, as smaller time intervals are considered, calculated values of security converge solution underlying differential equation. It can be used value any dependent on single state variable and extended deal with many pricing problems where there several variables. illustrates approach by using it bonds bond options under two different interest rate processes.

A company’s credit default swap spread is the cost per annum for protection against a by company. In this paper we analyze data on spreads collected derivatives broker. We first examine relationship between and bond yields reach conclusions benchmark risk-free rate used participants in market. then carry out series of tests to explore extent which rating announcements Moody’s are anticipated

This paper proposes a new model for calculating VaR where the user is free to choose any probability distributions daily changes in market variables and parameters of are subject updating schemes such as GARCH. Transformations assumed be multivariate normal. The appealing that calculation relatively straightforward can make use RiskMetrics or similar database. We test version using nine years data on 12 different exchange rates. When first half used estimate model’s we find it provides good...

In 1974 Robert Merton proposed a model for assessing the credit risk of company by characterizing company's equity as call option on its assets. this paper we propose method estimating model's parameters from implied volatilities options equity.

This paper presents a generalized version of the lattice approach to pricing options. It shows how control variate technique can produce significant improvements in efficiency approach. The is illustrated using American puts on dividend and nondividend paying stocks.

that follows a mean-reverting arithmetic process. It can be used to implement the Ho-Lee model, Hull-White and Black-Karasinski model. Also, it is tool fordeveloping wide range of new models.In this article we provide more details on way in which trees used.We discuss analytic results available when

Credit derivatives are among the most important new financial instruments, but also complicated. Each individual issuer is continuously exposed to default risk, and intensity looking forward not constant. It typically has a term structure, as revealed in CDS market. A portfolio of risky bonds, CDO, aggregates risks, now correlations them become important. CDO tranches then redistribute split up this aggregate exposure set securities. Evaluating resulting tranche exposures requires model for...

An experimental study has been made of the properties and characteristics a glow discharge to nearly spherical hollow cathode. Current densities in excess 0.5 amp/cm2 can be drawn from cathode with negligible deterioration sputtering. In neon, exhibits stable reproducible negative volt-ampere characteristic at currents few milliamperes. At these currents, probe measurements indicate plasma contains ∼1-v electrons concentrations greater than 1013/cm3.

To investigate the influence of clear surgical resection margin width on disease recurrence rate after intentionally curative colorectal liver metastases.There is consensus that a histological positive predictor metastases. The dispute, however, over cancer-free required ongoing.Analysis observational prospectively collected data for 2715 patients who underwent primary metastases from 2 major hepatobiliary units in United Kingdom. Histological was classified as (if cancer cells present at...

Traditionally practitioners have used LIBOR and LIBOR-swap rates as proxies for risk-free when valuing derivatives. This practice has been called into question by the credit crisis that started in 2007. Many banks now consider overnight indexed swap (OIS) should be rate collateralized portfolios are valued this purpose not collateralized. paper examines concludes OIS all situations.

The authors propose a simple model for incorporating wrong-way and right-way risk into the Monte Carlo simulation that is used to calculate credit value adjustment (CVA). assumes relationship between hazard rate of counterparty variables whose values are generated, or can be as part simulation. present numerical results portfolios 25 instruments dependent on five underlying market variables.