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Technical paper

Smiling hybrids

Vladimir Piterbarg develops a multi-currency model with foreign exchange skew suitable for valuation and risk management of forex-linked hybrids, in particular power-reverse dual-currency swaps. The emphasis of the article is on model calibration to…

The real value of stock

Collars involve the payment of a variable amount of stock, depending on an average stock price. In this article, Anthony Pavlovich uses the Black-Scholes framework to value these exotic derivatives and explore issues with hedging, as well as providing an…

Absolute return volatility

The use of absolute return volatility has manymodelling benefits, says John Cotter. An illustration isgiven for the market risk measure, minimum capitalrequirements

CMCDS valuation with market models

There is little, if any, literature available on constant maturity credit default swap valuation. Here, Damiano Brigo builds on his no-arbitrage dynamic credit default swap (CDS) market model to derive a formula involving a 'convexity adjustment' feature…

Pricing illiquidity in energy markets

Illiquidity is sadly a typical feature of many energy derivative markets. In this paper Stefano Fiorenzani proposes the application of a methodology, originally developed for equity markets, to overcome this problem

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