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Financial mathematics has recently enjoyed considerable interest on account of its impact on the finance industry. In parallel, the theory of Levy processes has also seen many exciting developments. These powerful modelling tools allow the user to model more complex phenomena, and are commonly applied to problems in finance. Levy Processes in Finance: Pricing Financial Derivatives takes a practical approach to describing the theory of Levy-based models, and features many examples of how they may be used to solve problems in finance.*Provides an introduction to the use of Levy processes in finance.*Features many examples using real market data, with emphasis on the pricing of financial derivatives.*Covers a number of key topics, including option pricing, Monte Carlo simulations, stochastic volatility, exotic options and interest rate modelling.*Includes many figures to illustrate the theory and examples discussed.*Avoids unnecessary mathematical formalities.The book is primarily aimed at researchers and postgraduate students of mathematical finance, economics and finance. The range of examples ensures the book will make a valuable reference source for practitioners from the finance industry including risk managers and financial product developers

Regulators have embraced the idea of pre‐arranging bank recapitalizations through (funded or unfunded) contingent capital issuance. Contingent capital is intended to be triggered when a bank is headed toward failure to provide an automatic equity injection that keeps the bank out of distress. This note discusses counterparty risk, effectiveness, moral hazard, contagion and systemic risk, as well as death‐spiral issues arising from the hedging strategies of the investors. We pay attention to important design issues with respect to the trigger and conversion ratio and comment on their pricing from an equity and credit derivative perspective.

We discuss a Lévy multivariate model for financial assets which incorporates jumps, skewness, kurtosis and stochastic volatility. We use it to describe the
behavior of a series of stocks or indexes and to study a multi-firm, value-based default model.

Starting from an independent Brownian world, we introduce jumps and other deviations from normality, including non-Gaussian dependence. We use a stochastic time-change technique and provide the details for a Gamma change.

The main feature of the model is the fact that - opposite to other, non jointly Gaussian settings - its risk neutral dependence can be calibrated from univariate derivative prices, providing a surprisingly good fit.

This book provides an overview of the risk components of CoCo bonds. CoCos are hybrid financial instruments that convert into equity or suffer a write-down of the face value upon the appearance of a trigger event. The loss-absorption mechanism is automatically enforced either via the breaching of a particular accounting ratio, typically in terms of the Common Equity Tier 1 (CET1) ratio, or via a regulatory trigger. CoCos are non-standardised instruments with different loss-absorption and trigger mechanisms. They might also contain additional features such as the cancellation of coupon payments. Different pricing models are discussed in detail. These models use market data such as share prices, CDS levels and implied volatility in order to calculate the theoretical price of a CoCo bond and its sensitivities, providing the investor with insides to hedge from adverse changes in the market conditions. The audience are professionals as well as academics who want to learn how to risk manage CoCo bonds using cutting edge techniques as well as all the risk involved in CoCo bonds.--

This is a complete guide to the pricing and risk management of convertible bond portfolios. Convertible bonds can be complex because they have both equity and debt like features and new market entrants will usually find that they have either a knowledge of fixed income mathematics or of equity derivatives and therefore have no idea how to incorporate credit and equity together into their existing pricing tools. Part I of the book covers the impact that the 2008 credit crunch has had on the markets, it then shows how to build up a convertible bond and introduces the reader to the traditional con.