Eva Lütkebohmert

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The credit value-at-risk model underpinning the Basel II Internal Ratings-Based approach assumes that idiosyncratic risk has been diversified away fully in the portfolio, so that economic capital depends only on systematic risk contributions. We develop a simple methodology for approximating the effect of undiversified idiosyncratic risk on VaR. The(More)
In this paper we determine the lowest cost strategy for a given payoff in Lévy markets where the pricing is based on the Esscher martingale measure. In particular, we consider Lévy models where the price process is driven by an NIGand a VG-process. Explicit solutions for cost-efficient strategies are derived for a variety of vanilla options, spreads, and(More)
In mathematical Finance calculating the Greeks by Malliavin weights has proved to be a numerically satisfactory procedure for finite-dimensional Itô-diffusions. The existence of Malliavin weights relies on absolute continuity of laws of the projected diffusion process and a sufficiently regular density. In this article we first prove results on absolute(More)
In 2005 the Internal Ratings Based (IRB) approach of ‘Basel II’ was enhanced by a ‘treatment of double default effects’ to account for credit risk mitigation techniques such as ordinary guarantees or credit derivatives. This paper reveals several severe problems of this approach and presents a new method to account for double default effects. This new asset(More)
We propose a unified structural credit risk model incorporating insolvency, recovery and rollover risks. The firm finances itself mainly by issuing shortand long-term debt. Short-term debt can have either a discrete or a more realistic staggered tenor structure. We show that a unique threshold strategy (i.e., a bank run barrier) exists for short-term(More)
In this paper we derive explicit representations for cost-efficient puts and calls in financial markets which are driven by a Lévy process and where the pricing of derivatives is based on the Esscher martingale measure. Whereas the construction and evaluation of the efficient selfquanto call is a straightforward application of the general theory, the(More)
A perturbation involving a small parameter of the Black-Scholes-Merton model with time dependent volatility is considered. A pricing formula is derived as an asymptotic series in powers of the small parameter. The summation of this series is performed, using methods of the theory of Borel summability in a suitable direction.
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