Approximation solutions for indifference pricing under general utility functions

With the aid of Taylor-based approximations, this paper presents results for pricing insurance contracts by using indifference pricing under general utility functions. We discuss the connection between the resulting "theoretical" indifference prices and the pricing rule-of-thumb that practitioners use: Best Estimate plus a "Market Value Margin". Furthermore, we compare our approximations to known analytical results for exponential and power utility

Risk managing bermudan swaptions in the libor BGM model

This article presents a novel approach for calculating swap vegaper bucket in the Libor BGM model. We show that for some forms of thevolatility an approach based on re-calibration may lead to a large uncertaintyin estimated swap vega, as the instantaneous volatility structure maybe distorted by re-calibration. This does not happen in the case of constantswap rate volatility. We then derive an alternative approach, not based onre-calibration, by comparison with the swap market model. The strength ofthe method is that it accurately estimates vegas for any volatility functionand at a low number of simulation paths. The key to the method is thatthe perturbation in the Libor volatility is distributed in a clear, stable andwell understood fashion, whereas in the re-calibration method the change involatility is hidden and potentially unstable.risk management;libor BGM model;central interest rate model;bermudan swaptions;swap market model

Risk Managing Bermudan Swaptions in the Libor BGM Model

This article presents a novel approach for calculating swap vega per bucket in the Libor BGM model. We show that for some forms of the volatility an approach based on re-calibration may lead to a large uncertainty in estimated swap vega, as the instantaneous volatility structure may be distorted by re-calibration. This does not happen in the case of constant swap rate volatility. We then derive an alternative approach, not based on re-calibration, by comparison with the swap market model. The strength of the method is that it accurately estimates vegas for any volatility function and at a low number of simulation paths. The key to the method is that the perturbation in the Libor volatility is distributed in a clear, stable and well understood fashion, whereas in the re-calibration method the change in volatility is hidden and potentially unstable.central interest rate model, Libor BGM model, swaption vega, risk management, swap market model, Bermudan swaption

Observational Equivalence of Discrete String Models and Market Models

In this paper we show that, contrary to the claim made in Longsta, Santa-Clara, and Schwartz (2001a) and Longsta, Santa-Clara, and Schwartz (2001b), discrete string models are not more parsimonious than market models.In fact, they are found to be observationally equivalent.We derive that, for the estimation of both a K-factor discrete string model and a K-factor Libor market model for N forward rates the number of parameters that needs to be estimated equals NK .K (K .1) /2 and not K (K +1)/2 and NK, respectively.string model;market model

La multidisciplinarité en santé mentale : fiction ou réalité?

La sectorisation des soins psychiatriques est une réalité qui existe maintenant depuis suffisamment longtemps au Québec pour mériter qu'on s'y attarde quelque peu en vue de l'interroger. Cette nouvelle pratique a vu apparaître ce que l'on nomme communément l'équipe multidisciplinaire de santé mentale communautaire. Il est possible de s'interroger sur ce que signifient véritablement la multidisciplinarité et la « communautarité ». Nous nous attarderons dans ce texte à considérer les contradictions véhiculées par l'équipe soignante au plan de sa multidisciplinarité, laissant de côté une réflexion sur sa dimension communautaire. L'équipe soignante peut devenir un objet de recherche dans le but de découvrir dans quelle mesure la santé mentale, en théorie et en pratique, est effectivement quelque chose de communautaire et de multidisciplinaire. Il suffit d'observer la pratique du travail d'équipe d'un groupe de soignants pour découvrir la théorie de la maladie mentale qui la sous-tend plus ou moins implicitement, puisque théorie et pratique vont essentiellement de pair.The author is looking into the problem of multidisciplinarity in mental health : through a theoretical conception of mental disease and from a more practical point of view through the actual functionning of a treating team in mental health. He tries to develop two thesis : 1) physical or social criteria cannot define madness, it has to be studied from a psychological point of view : madness is a personal as well as a psychical fate, a difficulty in facing the different levels and crisis of existence where the physical and social factors are secondary : the specific character of mental health resides in its psychological dimension; 2) the functioning of the treating team is analyzed according to three main models : autocratic, anarchic and democratic : the concept of a treating team in mental health can only be understood if each of its members express himself in an autonomous way and according to his own competencies with regard to the public : this would protect the multidisciplinary team from the dangers of an autocratic leadership or of an anarchic functioning

Fast drift approximated pricing in the BGM model

This paper shows that the forward rates process discretized by a single time step together with a separability assumption on the volatility function allows for representation by a low-dimensional Markov process. This in turn leads to e±cient pricing by for example finite differences. We then develop a discretization based on the Brownian bridge especially designed to have high accuracy for single time stepping. The scheme is proven to converge weakly with order 1. We compare the single time step method for pricing on a grid with multi step Monte Carlo simulation for a Bermudan swaption, reporting a computational speed increase of a factor 10, yet pricing sufficiently accurate.BGM model, predictor-corrector, Brownian bridge, Markov processes, separability, Feynman-Kac, Bermudan swaption