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We consider the pricing of variable annuities with the Guaranteed Minimum Withdrawal Benefit (GMWB) under the Vasicek stochastic interest rates framework. The holder of the variable annuity contract pays an initial purchase payment to the insurance company, which is then invested in a portfolio of risky assets. Under the GMWB, the holder can withdraw a… (More)

- Kwai Sun Leung
- Appl. Math. Lett.
- 2013

We review the commonly used numerical algorithms for option pricing under Levy process via Fast Fourier transform (FFT) calculations. By treating option price analogous to a probability density function, option prices across the whole spectrum of strikes can be obtained via FFT calculations. We also show how the property of the Fourier transform of a… (More)

We analyze the counterparty risk for credit default swaps using the Markov chain model of portfolio credit risk of multiple obligors with interacting default intensity processes. The default correlation between the protection seller and underlying entity is modeled by an increment in default intensity upon the occurrence of an external shock event. The… (More)

- Kwai Sun Leung, Hoi Ying Wong, Hon-Yip Ng
- J. Computational Applied Mathematics
- 2013

We consider the finite time horizon dividend-ruin model where the firm pays out dividends to its shareholders according to a dividend-barrier strategy and becomes ruined when the firm asset value falls below the default threshold. The asset value process is modeled as a restricted Geometric Brownian process with an upper reflecting (dividend) barrier and a… (More)

Credit risk is quantified by the loss distribution due to unexpected changes in the credit quality of the counterparty in a financial contract. Default correlation risk refers to the risk that a bundle of risky obligors may default together. To understand the clustering phenomena in correlated defaults, we consider credit contagion models which describe the… (More)

Repricing of an employee stock option refers to the practice of lowering the strike price and /or extending the maturity date of a previously granted employee stock option. Normally, firms reprice after a period of significant stock price decline that renders the employee stock options deeply out-of-the-money. By modeling various repricing mechanisms based… (More)

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