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This paper studies equity basket options – i.e. multi-dimensional derivatives whose payoffs depend on the value of a weighted sum of the underlying stocks – and develops a new and innovative approach to ensure consistency between options on individual stocks and the index comprising them. Specifically, we show how to resolve a well-known problem that when individual constituent distributions of an equity index are inferred from the single-stock option markets and combined in a multi-dimensional local/stochastic volatility model, the resulting basket option prices will not generate a skew matching that of the options on the equity index corresponding to the basket. [ABSTRACT FROM AUTHOR]

Credit risk exposure of a cash provider in a repo transaction is limited to 'double default events' when the counterparty and the issuer of the underlying collateral asset both default in a short period of time. This article presents a new and intuitive model for modeling correlated defaults, which are the key drivers of residual credit risk in repo portfolios. In the model, default times of counterparties and collateral issuers are determined by idiosyncratic and systematic factors, whereby a name defaults if it is struck by either factor for the first time. The novelty of the approach lies in representing systematic factors as increasing sequences of random variables. Such a setting allows us to precisely capture the clustering of defaults in time and build a rich dependence structure that is free of the flaws inherent in the Gaussian copula-based approaches still widely used for portfolio credit risk applications. Thanks to its general formulation, the model can be applied not only to repos, but also more broadly to pricing and risk-managing any default-correlation-sensitive instruments, e.g., credit default swaps, default swaptions, and CDOs. [ABSTRACT FROM AUTHOR]

A literary criticism of the book "In Defense of Advertising: Arguments from Reason, Ethical Egoism, and Laissez-Faire Capitalism," by Jerry Kirkpatrick is presented. It explores the section on capitalism and Christianity, as well as on how the book may be improved. It examines the relation between Christianity and capitalism. It questions the emphasis given on Christianity in defense of advertising.