scholarly journals Closed-form pricing formula for foreign equity option with credit risk

2021 ◽  
Vol 2021 (1) ◽  
Author(s):  
Donghyun Kim ◽  
Ji-Hun Yoon ◽  
Geonwoo Kim
Keyword(s):  
Credit Risk ◽  
Closed Form ◽  
Distribution Functions ◽  
Cumulative Distribution ◽  
Transform Method ◽  
Equity Options ◽  
Over The Counter ◽  
3 Dimensional ◽  
Numerical Result ◽  
Pricing Formula

AbstractSince credit risk in the over-the-counter (OTC) market has undoubtedly become very important issue, credit risk has to be considered when the options in the OTC market are priced. In this paper, we consider the valuation of foreign equity options with credit risk. In order to derive a closed-form pricing formula of this option, we adopt the partial differential equation (PDE) approach and use the Mellin transform method to solve the PDE. Specifically, triple Mellin transforms are used, and the pricing formula is presented as 3-dimensional normal cumulative distribution functions. Finally, we verify that our closed-form formula is accurate by comparing it with the numerical result from the Monte-Carlo simulation.

A closed-form pricing formula for catastrophe equity options

2021 ◽  
pp. 1-13
Author(s):  
Puneet Pasricha ◽  
Anubha Goel ◽  
Song-Ping Zhu
Keyword(s):  
Closed Form ◽  
Asset Price ◽  
Distribution Functions ◽  
Equity Options ◽  
Put Options ◽  
Stochastic Interest ◽  
Joint Characteristic ◽  
Infinite Sums ◽  
Closed Form Formula ◽  
Pricing Formula

In this article, we derive a closed-form pricing formula for catastrophe equity put options under a stochastic interest rate framework. A distinguishing feature of the proposed solution is its simplified form in contrast to several recently published formulae that require evaluating several layers of infinite sums of $n$ -fold convoluted distribution functions. As an application of the proposed formula, we consider two different frameworks and obtain the closed-form formula for the joint characteristic function of the asset price and the losses, which is the only required ingredient in our pricing formula. The prices obtained by the newly derived formula are compared with those obtained using Monte-Carlo simulations to show the accuracy of our formula.

scholarly journals Valuation of Exchange Option with Credit Risk in a Hybrid Model

Mathematics ◽  
2020 ◽  
Vol 8 (11) ◽  
pp. 2091
Author(s):  
Geonwoo Kim
Keyword(s):  
Credit Risk ◽  
Hybrid Model ◽  
Structural Model ◽  
Risk Model ◽  
Probabilistic Approach ◽  
Option Price ◽  
Distribution Functions ◽  
Cumulative Distribution ◽  
Reduced Form ◽  
Exchange Option

In this paper, the valuation of the exchange option with credit risk under a hybrid credit risk model is investigated. In order to build the hybrid model, we consider both the reduced-form model and the structural model. We adopt the probabilistic approach to derive the closed-form formula of an exchange option price with credit risk under the proposed model. Specifically, the change of measure technique is used repeatedly, and the pricing formula is provided as the standard normal cumulative distribution functions.

scholarly journals Variance Swap Pricing under Markov-Modulated Jump-Diffusion Model

2021 ◽  
Vol 2021 ◽  
pp. 1-16
Author(s):  
Shican Liu ◽  
Yu Yang ◽  
Hu Zhang ◽  
Yonghong Wu
Keyword(s):  
Closed Form ◽  
Diffusion Model ◽  
Regime Switching ◽  
Jump Diffusion ◽  
Strike Price ◽  
Transform Method ◽  
Variance Swap ◽  
Continuous Sampling ◽  
Jump Diffusion Model ◽  
Pricing Formula

This paper investigates the pricing of discretely sampled variance swaps under a Markov regime-switching jump-diffusion model. The jump diffusion, as well as other parameters of the underlying stock’s dynamics, is modulated by a Markov chain representing different states of the market. A semi-closed-form pricing formula is derived by applying the generalized Fourier transform method. The counterpart pricing formula for a variance swap with continuous sampling times is also derived and compared with the discrete price to show the improvement of accuracy in our solution. Moreover, a semi-Monte-Carlo simulation is also presented in comparison with the two semi-closed-form pricing formulas. Finally, the effect of incorporating jump and regime switching on the strike price is investigated via numerical analysis.

scholarly journals Do galactic bars depend on environment?: an information theoretic analysis of Galaxy Zoo 2

2020 ◽  
Vol 501 (1) ◽  
pp. 994-1001
Author(s):  
Suman Sarkar ◽  
Biswajit Pandey ◽  
Snehasish Bhattacharjee
Keyword(s):  
Spatial Distribution ◽  
Mutual Information ◽  
Local Density ◽  
Statistical Significance ◽  
Distribution Functions ◽  
Cumulative Distribution ◽  
Host Galaxy ◽  
Data Sets ◽  
Data Set ◽  
Information Theoretic

ABSTRACT We use an information theoretic framework to analyse data from the Galaxy Zoo 2 project and study if there are any statistically significant correlations between the presence of bars in spiral galaxies and their environment. We measure the mutual information between the barredness of galaxies and their environments in a volume limited sample (Mr ≤ −21) and compare it with the same in data sets where (i) the bar/unbar classifications are randomized and (ii) the spatial distribution of galaxies are shuffled on different length scales. We assess the statistical significance of the differences in the mutual information using a t-test and find that both randomization of morphological classifications and shuffling of spatial distribution do not alter the mutual information in a statistically significant way. The non-zero mutual information between the barredness and environment arises due to the finite and discrete nature of the data set that can be entirely explained by mock Poisson distributions. We also separately compare the cumulative distribution functions of the barred and unbarred galaxies as a function of their local density. Using a Kolmogorov–Smirnov test, we find that the null hypothesis cannot be rejected even at $75{{\ \rm per\ cent}}$ confidence level. Our analysis indicates that environments do not play a significant role in the formation of a bar, which is largely determined by the internal processes of the host galaxy.

A CLOSED-FORM PRICING FORMULA FOR EUROPEAN EXCHANGE OPTIONS WITH STOCHASTIC VOLATILITY

2021 ◽  
pp. 1-10
Author(s):  
Puneet Pasricha ◽  
Anubha Goel
Keyword(s):  
Closed Form ◽  
Stochastic Volatility ◽  
Closed Form Solution ◽  
Form Solution ◽  
Stochastic Volatility Model ◽  
Strike Price ◽  
Volatility Model ◽  
Exchange Options ◽  
Pricing Formula ◽  
Exchange Option

This article derives a closed-form pricing formula for the European exchange option in a stochastic volatility framework. Firstly, with the Feynman–Kac theorem's application, we obtain a relation between the price of the European exchange option and a European vanilla call option with unit strike price under a doubly stochastic volatility model. Then, we obtain the closed-form solution for the vanilla option using the characteristic function. A key distinguishing feature of the proposed simplified approach is that it does not require a change of numeraire in contrast with the usual methods to price exchange options. Finally, through numerical experiments, the accuracy of the newly derived formula is verified by comparing with the results obtained using Monte Carlo simulations.

scholarly journals Composite Aerosol Optical Depth Mapping over Northeast Asia from GEO-LEO Satellite Observations

2021 ◽  
Vol 13 (6) ◽  
pp. 1096
Author(s):  
Soi Ahn ◽  
Sung-Rae Chung ◽  
Hyun-Jong Oh ◽  
Chu-Yong Chung
Keyword(s):  
Aerosol Optical Depth ◽  
Optical Depth ◽  
Northeast Asia ◽  
Low Earth Orbit ◽  
Distribution Functions ◽  
Cumulative Distribution ◽  
Radiometric Calibration ◽  
Climate Data ◽  
Error Statistics ◽  
Spatiotemporal Resolution

This study aimed to generate a near real time composite of aerosol optical depth (AOD) to improve predictive model ability and provide current conditions of aerosol spatial distribution and transportation across Northeast Asia. AOD, a proxy for aerosol loading, is estimated remotely by various spaceborne imaging sensors capturing visible and infrared spectra. Nevertheless, differences in satellite-based retrieval algorithms, spatiotemporal resolution, sampling, radiometric calibration, and cloud-screening procedures create significant variability among AOD products. Satellite products, however, can be complementary in terms of their accuracy and spatiotemporal comprehensiveness. Thus, composite AOD products were derived for Northeast Asia based on data from four sensors: Advanced Himawari Imager (AHI), Geostationary Ocean Color Imager (GOCI), Moderate Infrared Spectroradiometer (MODIS), and Visible Infrared Imaging Radiometer Suite (VIIRS). Cumulative distribution functions were employed to estimate error statistics using measurements from the Aerosol Robotic Network (AERONET). In order to apply the AERONET point-specific error, coefficients of each satellite were calculated using inverse distance weighting. Finally, the root mean square error (RMSE) for each satellite AOD product was calculated based on the inverse composite weighting (ICW). Hourly AOD composites were generated (00:00–09:00 UTC, 2017) using the regression equation derived from the comparison of the composite AOD error statistics to AERONET measurements, and the results showed that the correlation coefficient and RMSE values of composite were close to those of the low earth orbit satellite products (MODIS and VIIRS). The methodology and the resulting dataset derived here are relevant for the demonstrated successful merging of multi-sensor retrievals to produce long-term satellite-based climate data records.

Probabilistic finite element analysis in heat transfer to a nuclear fuel rod bumper support

2004 ◽  
Vol 218 (12) ◽  
pp. 1499-1505
Author(s):  
Rama Subba Reddy Gorla
Keyword(s):  
Heat Transfer ◽  
Finite Element ◽  
Nuclear Fuel ◽  
Cost Effective ◽  
Distribution Functions ◽  
Cumulative Distribution ◽  
Element Analysis ◽  
Transfer Rates ◽  
Fuel Rod ◽  
Design Variables

Heat transfer from a nuclear fuel rod bumper support was computationally simulated by a finite element method and probabilistically evaluated in view of the several uncertainties in the performance parameters. Cumulative distribution functions and sensitivity factors were computed for overall heat transfer rates due to the thermodynamic random variables. These results can be used to identify quickly the most critical design variables in order to optimize the design and to make it cost effective. The analysis leads to the selection of the appropriate measurements to be used in heat transfer and to the identification of both the most critical measurements and the parameters.

scholarly journals Some new Simpson-type inequalities for generalized p-convex function on fractal sets with applications

2020 ◽  
Vol 2020 (1) ◽  
Author(s):  
Thabet Abdeljawad ◽  
Saima Rashid ◽  
Zakia Hammouch ◽  
İmdat İşcan ◽  
Yu-Ming Chu
Keyword(s):  
Convex Functions ◽  
Fractional Derivatives ◽  
Distribution Functions ◽  
Cumulative Distribution ◽  
Auxiliary Result ◽  
Fractal Sets ◽  
Different Types ◽  
Novel Applications ◽  
Class Of Functions ◽  
Harmonically Convex Functions

Abstract The present article addresses the concept of p-convex functions on fractal sets. We are able to prove a novel auxiliary result. In the application aspect, the fidelity of the local fractional is used to establish the generalization of Simpson-type inequalities for the class of functions whose local fractional derivatives in absolute values at certain powers are p-convex. The method we present is an alternative in showing the classical variants associated with generalized p-convex functions. Some parts of our results cover the classical convex functions and classical harmonically convex functions. Some novel applications in random variables, cumulative distribution functions and generalized bivariate means are obtained to ensure the correctness of the present results. The present approach is efficient, reliable, and it can be used as an alternative to establishing new solutions for different types of fractals in computer graphics.

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