A warrant is a derivative that gives the right, but not obligation, to buy or sell security at certain price before expiration. The valuation method was inspired by option because of similarities between these two derivatives. formula under Black–Scholes available in literature. However, known have number flaws; hence, this study aims develop pricing for warrants incorporating jumps, stochastic...

We derive generalizations of the Dupire formula to case general stochastic drift and/or local volatility. First, we handle in which is given as a difference two short rates. Such setting natural foreign exchange context where rates correspond currencies, an equity single-currency with dividend yield, or commodity convenience yield. present both call surface formulation and total implied varianc...

A typical shortcoming of most current credit portfolio models is the lack of a stochastic modeling of risk factors, such as interest rates or credit spreads, during the revaluation process at the risk horizon. Within the simple credit risk model underlying the Internal Ratings-based approach of Basel II with incorporated correlated interest rate risk the effect which results from neglecting the...

Many complex financial instruments with multiple state variables have no analytical formulas and thus must be priced by numerical methods like lattice. The bivariate lattice is a numerical method that is widely used to work with correlated state variables. Some research has focused on bivariate lattices for models with two state variables: stochastic underlying asset prices (e.g., stock prices)...