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In a sinking-fund bond, the issuer is required to retire portions of the bond prior to maturity, with the option of doing so either by calling the bonds by lottery, or by buying them back at their market value. This paper discusses the valuation of a default-free sinking-fund bond issue in the...
This paper deals with the valuation and the hedging of non-path-dependent European options on one or several underlying assets in a model of an international economy allowing for both, interest rate risk and exchange rate risk. Using martingale theory and, in particular, the change of numeraire...
Binomial models, which describe the asset price dynamics of the continuous-time model in the limit, serve for approximate valuation of options, especially where formulas cannot be derived analytically due to properties of the considered option type. To evaluate results, one inevitably must...
This paper presents a new arbitrage-free approach to the pricing of derivatives, when the price process of the underlying security does not conform to the standard assumptions. In comparision to the Black-Scholes price process we relax the requirements of i) continuity; ii) constant volatility;...
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