This paper investigates the valuation of European option with credit risk in a reduced formmodel when the stock price is driven by the so-called Markov-modulated jump-diffusion process, in which the arrival rate of rare events and the volatility rate of stock are controlled by a continuous-time Markov chain. We also assume that the interest rate and the default intensity follow the Vasicek mode...

This paper presents a new algorithm for the independent components analysis (ICA) problem based on efficient spacings estimates of entropy. Like many previous methods, we minimize a standard measure of the departure from independence, the estimated Kullback-Leibler divergence between a joint distribution and the product of its marginals. To do this, we use a consistent and rapidly converging en...

Despite its many strengths, the SAINTS (Squared-Autoregressive-Independent-Variable Nominal Term Structure) model of Constantinides (1992) cannot be directly compared with other popular term structure models such as Vasicek (1977) and Cox, Ingersoll and Ross (1985) mainly because the stochastic discount factor of the model is exogenously spec-iied. The primary motivation of this paper is to nd ...

Main purpose of this paper is to describe the background of interest rate modeling, i.e. introduce main division of interest rate models, explain what is the instantaneous interest rate and what is its suitable representative. We will deeply focus on Vaš́ıček and Hull-White model and analyze problem of the calibration of these models. Introduction It is well known that interest rates and their s...

We present a new approach for the pricing of interest rate derivatives which allows a direct computation of option premiums without deriving a (BlackScholes type) partial differential equation and without explicitly solving the stochastic process for the underlying variable. The approach is tested by rederiving the prices of a zero bond and a zero bond option for a short rate environment which ...

We present an alternative approach to the forecasting of motor vehicle collision rates. adopt oft-used tool in mathematical finance, Heston Stochastic Volatility model, forecast short-term and long-term evolution incorporate a number extensions model make it fit for modelling temporally-unstable non-deterministic nature rate fluctuations, introduce parameter account periods accelerated safety. ...

Mixture models play an important role in the modeling of portfolio losses. In these models the risk of default of individual obligors (indexed by i ∈ {1, . . . ,m}) depends on an underlying set of common economic factors, denoted Ψ. Given these factors, the losses due to default li of individual obligors are assumed to be stochastically independent. Dependence between different obligors stems o...