Reconciling and explaining observed volatility surfaces of equity indices from observed volatility surfaces of its constituents is an important issue for both relative value trading, and the pricing and hedging of equity options books. The […]
The paper focuses on hedging long-term liabilities with liquid short-term options. The spanning result of Carr and Wu (2004) states that there is a semi-static hedge which consists of a contnuum of options. To be […]
The concept of a jump, which is usually interpreted as a sudden change in the value either of an underlying asset or of a derivative security, provides a suitable framework that can be generalized to […]
We consider down-and-out options in the Black—Scholes framework. A down-and-out option is a financial contract that guarantees a payment at maturity provided that at the monitoring instances the price of the underlying stock is above […]
In an effort to improve credit risk management, financial institutions have developed various measures to manage their exposure to counterparty risk. One important measure of counterparty risk is potential future exposure (PFE), which is a […]
The orthodoxy has tendency to ignore drift which leaves opportunity for finformaticians the market over… Logged-in members can download the article by clicking the link below. To log in or register visit here.
An intuitive model for the yield curve, based on the notion of value-at-risk, is presented. It leads to interest rates that hedge against potential losses incurred from holding an underlying risky security until maturity. This […]