Technical paper
Himalaya options
Nothing epitomises the challenges of complex equity derivatives better than the so-called ‘mountain range’ products. In the second article looking at the challenges of this market, Marcus Overhaus analyses a particular product, the Himalayan option,…
The need for hybrid models
In response to the above article, the authors argue that pure firm-value approaches to default prediction are fundamentally flawed.?
The vol smile problem
The author examines a wide range of volatility smile models in the context of the liquidity of the forex options markets
Predictive Merton models
Do default indicators such as agency ratings improve upon the predictive power of KMV’s proprietary default prediction methodology?
Credit model evaluation
With the new Basel Capital Accord scheduled for implementation in 2005, banks are having to evaluate the credit scoring models that will enable them to meet the minimum standards for Basel’s internal ratings-based (IRB) approach. Selecting an appropriate…
Calibrating Libor
With a rich spectrum of maturities and tenors to contend with, the toughest aspect of pricing interest rate options is calibrating models of forward rates to market data. Here, Damiano Brigo and Fabio Mercurio present a scheme for simultaneously…
A discrete question
How should discrete dividend options be modelled in an equity option pricing framework? As Volf Frishling warns, unthinking use of certain models to solve this problem can lead tosignificant mispricing in some situations
Pricing default baskets
Nicholas Dunbar, Risk’s technical editor, introduces the first in a new series of technical papers written by quants at Deutsche Bank.“Default correlation has been one of the hottest topics in credit derivatives over the past year. So it is a pleasure to…
Basel II - Rules and Models
The proposed operational risk charge remains one of the most contentious areas of the new Basel Accord. Carol Alexander reviews the current proposals in the context of various simple models, and argues that practical implementation will require the use…
Linear, yet attractive, Contour
Banks’ Potential Future Exposure models are at the core of the advanced EAD (Exposure At Default) approach to capital requirements for credit risk considered in the New Basel Capital Accord. Juan Cárdenas, Emmanuel Fruchard and Jean-François Picron look…
Black-Scholes goes hypergeometric
Option pricing models
Style-based value-at-risk for UK equities
Risk measures
Modelling growth stocks
Stock valuation models
Equity to credit pricing
Default models
Crises and volatility
Stress testing
Behind the mirror
Barrier options
Calculating the contribution
Economic capital
The stochastic volatility Libor market model
Interest rates