The Normal Tempered Stable Distribution for synthetic CDO pricing

Synthetic CDO pricing using the double normal inverse Gaussian copula with stochastic factor loadings

Loss Distribution Evaluation for Synthetic CDOs

Efficient numerical methods for evaluating the loss distributions of synthetic CDOs are important for both pricing and risk management purposes. In this paper we discuss several methods for loss distribution evaluations. We first develop a stable recursive method. Then the improved compound Poisson approximations proposed by Hipp [12] are introduced. Finally, the normal power approximation meth...

An overview of factor models for pricing CDO tranches

We review the pricing of synthetic CDO tranches from the point of view of factor models. Thanks to the factor framework, we can handle a wide range of well-know pricing models. This includes pricing approaches based on copulas, but also structural, multivariate Poisson and affine intensity models. Factor models have become increasingly popular since there are associated with efficient semi-anal...

Financial Market Models with Lévy Processes and Time-Varying Volatility

Asset management and pricing models require the proper modeling of the return distribution of financial assets. While the return distribution used in the traditional theories of asset pricing and portfolio selection is the normal distribution, numerous studies that have investigated the empirical behavior of asset returns in financial markets throughout the world reject the hypothesis that asse...

A Markov Chain Approximation for American Option Pricing in Tempered Stable-GARCH Models

This paper considers the American option pricing problem under the stochastic volatility models. In particular, we introduce the GARCHmodel with two heavy-tailed distributions: classical tempered stable (CTS) and normal tempered stable (NTS) distribution. Then we apply the Markov chain approach to compute the prices of American style options under these two models. Minimal entropy provides a co...