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COVID-19 not only led to a significant loss of human lives but also brought indelible economic loss. To transfer the natural disaster risk, a variety of financial instruments written on the environmental phenomena have been developed and issued by financial institutions. The gamma distribution family is characterized by sparsity, heavy tail, and high skewness; thus, it has been widely used to model the data of environmental phenomena. To exploit the versatility of the gamma distribution, Vitiello and Poon propose the pricing model for financial instruments under the general equilibrium risk neutral valuation relationship (RNVR) framework. Though the VP model is capable of pricing financial instruments, their underlying is limited to a single asset. However, the vast majority of firms face various risks and prefer more efficient and cheaper ways to hedge these risks and maintain financial stability. To price multiple-asset financial instruments, this study extends the single-asset VP model to a multi-asset VP model (MVP) under the RNVR framework. Based on the MVP model, this study demonstrates two applications to price basket options and spread options. To manage the pricing of financial instruments that do not have closed-form pricing formulas, this study develops the Monte Carlo simulation method within the MVP model framework. For risk management, this study provides hedge ratios for market practitioners to manage their risk exposures. [ABSTRACT FROM AUTHOR]

Within the framework of the LIBOR market model, this article presents a new approach for finding the approximate distribution of constant maturity swap (CMS) rates under forward martingale measures. With [...]

Barrier caps, floors, and swaptions are priced in a closed form via the time-changed technique under the market models. The parameters of the resulting formulas can be easily extracted from [...]

Within the multifactor LIBOR market model, the authors examine three types pf interest rate spread options: LIBOR vs. LIBOR, LIBOR vs. swap rate, and swap rate vs. swap rate. These [...]

Under the arbitrage-free framework of the HJM model (Heath, Jarrow and Morton [1992]), this article simultaneously extends the BGM model (Brace, Gatarek and Musiela [1997])from a single-currency economy to a [...]

Despite the fact that currency-protected swaps and swaptions are widely traded in the marketplace, pricing models for zero-spread swaps, and swaptions have rarely been examined in the extant literature. This study presents a multicurrency LIBOR market model and uses it to derive pricing formulas for currency-protected swaps and swaptions with nonzero spreads. The resulting pricing formulas are shown to be feasible and tractable for practical implementation and their hedging strategies are also provided. Our pricing formulas provide prices close to those computed from Monte Carlo simulation, but involve far less computation time, and thereby offering almost instant price quotes to clients and daily marking-to-market trading books, and facilitating efficient risk management of trading positions. [ABSTRACT FROM AUTHOR]