The purpose of this paper is to provide an overview of the municipal bond market with an emphasis on the numerous embedded contingent claims. Embedded contingent claims include the standard call features, sinking funds, the advance refunding option, the synthetic advance refunding option, the credit risk option (default risk), marketability, and the numerous tax-related events. Municipal bond i...

We study the perpetual American call option pricing problem in a model of a financial market in which the firm issuing a risky asset can regulate the dividend rate by switching it between two constant values. The firm dividend policy is unknown for small investors who can only observe the prices available from the market. The asset price dynamics are described by a geometric Brownian motion wit...

The recent liquidity crisis on the credit derivative market has raised the need for consistent mark-to-model valuation method for some exotic products such as leverage super-senior tranches. Roughly speaking, a Leverage Super-Senior (LSS) tranche is a path-dependent option on the market-value of a traditional super-senior tranche. This option is exercised at the first moment when a particular t...

We examine the relationships between credit default swap (CDS) premiums and bond yield spreads for nine emerging market sovereign borrowers. We find that these two measures of credit risk deviate considerably in the short run, due to factors such as liquidity and contract specifications, but we estimate a stable long-term equilibrium relationship for most countries. In particular, CDS premiums ...

a unique arrangement of option contract -commitment to sell or buy by one of the parties and create some rights for the other party- has led this arrangement cannot be found similarly in the various contracts mentioned in the civil or sharia law. on the other hand approval of securities market act of the islamic republic of iran has provided legal environment for the design and issuance of opti...

We propose a few variations around a simple model in order to take into account the market impact of the option seller when hedging an option. This ”retro-action” mechanism turns the linear Black and Scholes PDE into a non-linear one. This model allows also to retrieve some earlier results of [9]. Numerical simulations are then performed.

This paper presents a simple reduce-form approach to pricing credit derivatives. The definition of default is purely based on the market value of a risky bond and its potential recovery value. A risky bond is treated as a riskless bond with an embedded short position on a barrier option. The risky bond market implicitly prices this barrier option. The default implied volatility (DIV) curve for ...

This paper examines the relationships among Hangseng index and its related derivatives in a bear market. The Johansen Co-integration and vector error correction model are used to analyze the relationships between markets. The main results are as follows: 1) The lead-lag relationships show that Hangseng index futures and option markets play a more important price discovery role; 2) The pricing e...

This paper studies modeling and existence issues for market models of option prices in a continuous-time framework with one stock, one bond and a family of European call options for one fixed maturity and all strikes. After arguing that (classical) implied volatilities are ill-suited for constructing such models, we introduce the new concepts of local implied volatilities and price level. We sh...