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This paper presents a mean‐reverting jump diffusion model for the electricity spot price and derives the corresponding forward price in closed‐form. Based on historical spot data and forward data from England and Wales the model is calibrated and months, quarters, and seasons–ahead forward...
This paper presents closed‐form expressions for pricing Bermudan options in terms of an infinite series of standard solutions of the Black–Scholes equation. These standard solutions are combined for successive exercise dates using backward induction. At each exercise date, the optimal exercise...
Interest guarantees on loans and savings contracts are viewed as financial claims and priced by the no arbitrage principle in continuous time Markov interest models of diffusion type and of Markov chain type. Various forms of loan contracts and guarantees are considered, an important distinction...
Recently the SABR model has been developed to manage the option smile which is observed in derivatives markets. Typically, calibration of such models is straightforward as there is adequate data available for robust extraction of the parameters required asinputs to the model. The paper considers...
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