Open Filter
Barrier Options and Lumpy Dividends
In this article, the authors study the pricing of barrier options on stocks with lumpy dividends.
Approximation of Continuous Monitoring with Discrete Monitoring Applied to Down—And—Out Options
In this paper, Stefan Ebenfeld and Damaris Hilzinger consider down—and—out options in the Black—Scholes framework.
Pricing Credit Derivatives with Uncertain Default Probabilities
In this article, the author presents a model for pricing credit spread options in an environment where the rating transition probabilities are uncertain parameters.
Swaptions: 1 Price, 10 Deltas, and … 61/2 Gammas*
This article compares simple risk measures (first and second order sensitivity to the underlying yield curve) for simple instruments (swaptions).
Can anyone solve the smile problem?
In this paper, the authors explore whether the smile problem can be solved and provide a general reflection of the problem.
Knock-in/out Margrabe
In this paper, Espen G. Haug and Jorgen Haug push the Black-Scholes-Merton (BSM) formula to the limit by using it to value exchange-one-asset-for-another options with knock-in or knock-out provisions that depend on the ratio of the two asset prices.
Calibration problems – An inverse problems view
In this article, Heniz W. Engl discusses the model parameters from market prices of liquid instruments.
Numerical Methods for the Markov Functional Model
Some numerical methods for efficient implementation of the 1- and 2-factor Markov Functional models of interest rate derivatives are proposed.
Order Statistics for Value at Risk Estimation and Option Pricing
We apply order statistics to the setting of VaR estimation. Here techniques like historical and Monte Carlo simulation rely on using the k-th heaviest loss to estimate the quantile of the profit and loss distribution of a portfolio of assets. We show that when the k-th heaviest loss is used the expected quantile and its error will be independent of the portfolio composition and the return functions of the assets in the portfolio.
Pricing Rainbow Options
A previous paper (West 2005) tackled the issue of calculating accurate uni-, bi- and trivariate normal probabilities. This has important applications in the pricing of multiasset options, e.g. rainbow options. In this paper, we derive the Black—Scholes prices of several styles of (multi-asset) rainbow options using change-of-numeraire machinery. Hedging issues and deviations from the Black-Scholes pricing model are also briefly considered.
