Faults in a batch process model of the small intestine create the symptoms of all types of irritable bowel syndrome. The model has three sequential processing sections corresponding to the natural divisions of the intestine. It is governed by a brain controller that is divided into four sub-controllers, each with a unique neurotransmitter. Each section has a sub-controller to manage transport. ...

Required in a wide range of applications in, e.g., finance, engineering, and physics, first-passage time problems have attracted considerable interest over the past decades. Since analytical solutions often do not exist, one strand of research focuses on fast and accurate numerical techniques. In this paper, we present an efficient and unbiased Monte-Carlo simulation to obtain double-barrier fi...

Credit default swaps (CDSs), the basic building block of the credit risk market, offer investors the opportunity to either buy or sell default protection on a reference entity. The protection buyer pays a premium periodically for the possibility to get compensation if there is a credit event on the reference entity until maturity or the default time, which ever is first. If there is a credit ev...

We generalize the Piterbarg [1] model to include (1) bilateral default risk as in Burgard and Kjaer [2], and (2) jumps in the dynamics of the underlying asset using general classes of Lévy processes of exponential type. We develop an efficient explicit-implicit scheme for European options and barrier options taking CVA-FVA into account. We highlight the importance of this work in the context of...

The credit derivatives market has experienced remarkable growth over the past decade. As such, there is a growing interest in tools for pricing of the most prominent credit derivative, the credit default swap (CDS). In this paper, we propose a heuristic algorithm for pricing of basket default swaps (BDS). For this purpose, genetic network programming (GNP), which is one of the recent evolutiona...

In this paper, we focus on what we call “European Proxy” of structural models, or shortly “ProxyStructural models” for credit derivatives. In standard structural models, default arrives as the first hit of a stochastic process to a barrier, hence involving a path-dependent condition. In “Proxy-Structural models”, by contrast, the path condition modeling the default indicator function is replace...

The model introduced in this article is designed to provide a consistent representation for both the real-world and pricing measures for the credit process. We find that good agreement with historical and market data can be achieved across all credit ratings simultaneously. The model is characterized by an underlying stochastic process that takes on values on a discrete lattice and represents c...

When equity default swap (EDS) contracts were first included in a rated collateralized debt obligation (CDO) deal, some critics doubted the originality of the product. In fact, EDSs are equivalent to already existing binary barrier options on equity, except the premium is not paid upfront, but over time, and conditional on the trigger event not having occurred. Therefore, as opposed to existing...

Abstract The paper considers the pricing of credit default swaps (CDSs) using a revised version risk model proposed in Cathcart and El-Jahel (2003). Default occurs either first time signaling process breaches threshold barrier or unexpectedly at jump Cox process. intensity depends on risk-free interest rate, which follows Vasicek process, instead Cox-Ingersoll-Ross as original model. This offer...