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The additive method for upper bounds for Bermudan options is rephrased in terms of buyer's and seller's prices. It is shown how to deduce Jamshidian's upper bound result in a simple fashion from the additive method, including the case of possibly zero final pay‐off. Both methods are improved by...
Using perturbation methods, approximate formulas are obtained for zero‐coupon bonds under the generalized Black–Karasinski model. The formulas perform well regarding accuracy and calibration to available data. For a special case, which corresponds to the Hull–White model, the approximation...
The paper considers a linear factor model (LFM) to study the behaviour of the correlation coefficient between various stock returns during a downturn. Changing correlation is related to the tail distribution of the driving factors, which is the market for Sharpe's one‐factor model. General...
The paper investigates the possibility of an arbitrage‐free model for the term structure of interest rates where the yield curve only changes through a parallel shift. HJM type forward rate models driven by a multidimensional Wiener process and by a general marked point process are considered....
This paper prices defaultable bonds by incorporating inherent risks with the use of utility functions. By allowing risk preferences into the valuation of bonds, nonlinearity is introduced in their pricing. The utility‐function approach affords the advantage of yielding exact solutions to the...
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