In this paper, we present two efficient algorithms for pricing credit default swaps based on a structural default model. In our model, the value of the firm is assumed to be the exponential of a jump-diffusion process. Our first algorithm to price a credit default swap within this framework is an efficient and unbiased Monte Carlo simulation. An excellent performance is obtained by first simula...

The stochastic analysis is presented for the parameter estimation problem for fitting a theoretical jump-diffusion model to the log-returns from closing data of the Standard and Poor’s 500 (S&P500) stock index during the prior decade 1992-2001. The jump-diffusion model combines a the usual geometric Brownian motion for the diffusion and a space-time Poisson process for the jumps such that the j...

If the intensity parameter in a jump diffusion model is identically zero, then parameters characterizing the jump size density cannot be identified. In general, this lack of identification precludes consistent estimation of identified parameters. Hence, it should be standard practice to consistently pretest for jumps, prior to estimating jump diffusions. Many currently available tests have powe...

In recent years the financial world has focused on accurate pricing of exotic and hybrid products that are based on a combination of underlyings from different asset classes. In this paper we present an extension of the stochastic volatility models by a stochastic Hull-White interest rate component. It is our goal to include this system of stochastic differential equations in the class of affin...

We aim at accommodating the existing affine jump-diffusion and quadratic models under the same roof, namely the linear-quadratic jump-diffusion (LQJD) class. We give a complete characterization of the dynamics of this class of models by stating explicitly a list of structural constraints, and compute standard and extended transforms relevant to asset pricing. We show that the LQJD class can be ...