Nowadays, options are common financial derivatives. For this reason, by increase of applications for these financial derivatives, the problem of options pricing is one of the most important economic issues. With the development of stochastic models, the need for randomly computational methods caused the generation of a new field called financial engineering. In the financial engineering the pre...

This article combines an orientation to credit risk modeling with an introduction to affine Markov processes, which are particularly useful for financial modeling. We emphasize corporate credit risk and the pricing of credit derivatives. Applications of affine processes that are mentioned include survival analysis, dynamic term-structure models, and option pricing with stochastic volatility and...

We examine how non-competitiveness in financial markets affects the choice of asset portfolios and the determination of equilibrium prices. We apply a model of economic equilibrium, based on [12], in which individual traders recognize and estimate the impact of their trades on financial prices, and in which these effects are determined endogenously as part of the equilibrium concept. For the ca...

The real exchange rate is very volatile relative to major macroeconomic aggregates and its correlation with the ratio of domestic over foreign consumption is negative (Backus-Smith puzzle). These two observations constitute a puzzle to standard international macroeconomic theory. This paper develops a two country model with complete asset markets and limited enforcement for international financ...

This paper presents a universal framework for pricing financial and insurance risks. Examples are given for pricing contingent payoffs, where the underlying asset or loss can be either traded or not traded. The paper also outlines an application of the framework to prescribe capital allocations within insurance companies, and to determine fair value for insurance liabilities.

Several techniques of fundamental physics like quantum mechanics, field theory and related tools of non-commutative probability, gauge theory, path integral etc. are being applied for pricing of contemporary financial products and for explaining various phenomena of financial markets like stock price patterns, critical crashes etc.. The cardinal contribution of physicists to the world of financ...

This paper gives a selective review on the recent developments of nonparametric methods in both continuous and discrete time finance, particularly in the areas of nonparametric estimation and testing of diffusion processes, nonparametric testing of parametric diffusion models, nonparametric pricing of derivatives, nonparametric estimation and hypothesis testing for nonlinear pricing kernel, and...

Th Feynman-Kac Formula offers an intuitive approach to solve PDE of financial assets. Traditionally, it is used to model financial assets without default risk.This paper demonstrates the usefulness of Feynman-Kac formula for pricing certain corporate bond models by revisiting Cathcart and El-Jahel (1998) and Schobel (1999).In the first model, a closed-form formula is derived to replace Cathcart...

This paper presents a universal framework for pricing financial and insurance risks. Examples are given for pricing contingent payoffs, where the underlying asset or liability can be either traded or not traded. The paper also outlines an application of the framework to prescribe capital allocations within insurance companies, and to determine fair values of insurance liabilities. 1 SCOR Reinsu...