<t>QuoteOriginally posted by: AmbHi Structurer,I read this article few months ago. Have you ever implemented Levy model? If yes, have you used it in stress markets (e.g. on this friday February 29th)?Levy base correlation values sound to be smaller than Gaussian and then it maybe solves my problem. ...

<t>Levy Base correlation can be for equity and mezzanine higher than the Gaussian, but the curve you get for Levy is much flatter. Meaning that in order to capture senior tranches ones does not need to pump up correlation towards 100 percent. The real benifit of switching to Levy Base correlation is...

A paper on CPPI and CPDO under jump models (including calibration)Let's Jump Together - Pricing of Credit Derivatives

The formula was already in the paper by Bakshi-Cao-Chen "Empirical Performance of Alternative Option Pricing Models", Journal of Finance, Vol. LII, No. 5, december 1997, pp. 2003-2049. More precisely, you find it in Equation (A.11);

as in many posts already indicated: please have a look at The Little Heston Trap.Maybe also good to know is that the formual was already around long time - so refering to it as the Gatheral formula is not really that appropriate.

The Little Heston Trap

For your information - in our paper The Little Heston Trap you find a very simple way to solve this problem of branch cuts in the Heston model.

<r>Pricing of Barriers for example by PIDE for VG and its applications to CDS pricing can be found in our paper <URL url="http://www.schoutens.be/cds.pdf">http://www.schoutens.be/cds.pdf</URL> ; The algorithm can easily be adapted to pricing of other types of options, like bermudian, american, digit...

<r>The solution and the proof of it can be found in our paper : The Little Heston trap. The paper is available on my webpage -<URL url="http://www.schoutens.be/HestonTrap.pdf">http://www.schoutens.be/HestonTrap.pdf</URL> -and will be published shortly.The solution to the accuracy problem is extremel...

<r>The problem is in fully discussed and solved in our paper : The Little Heston trap. The paper is available on my webpage -<URL url="http://www.schoutens.be/HestonTrap.pdf-">http://www.schoutens.be/HestonTrap.pdf-</URL> and will be published shortly.The solution to the accuracy problem is extremel...

<r>We proved that1) the two characteristic functions around are equivalent2) one leads to numerical problems for the pricing of vanillas from a certain threshold maturity, the other one never.You find the pdf-file on my website:<URL url="http://www.schoutens.be/HestonTrap.pdf">www.schoutens.be/Hesto...

<t>I just wanted to note that in case you want to price a VS under the Heston model - there is an closed-form solution for a "good" approximation of the price since you have the char. function of the Logarithm of the stock price availble. See my paper "Moment Swaps" (which also appeared in Quantitat...

We have done a study on VG calibartion on CDSs and calibration of a multivariate VG model on vol surfaces; see my website

For a comparison of Levy with SV and other SV models like Heston : see my paper "A perfect Calibration ! Now What ?" in Wilmott Magazine or in the Wiley book "Exotic Options Pricing and Advanced Levy models"For pricing of and calibration on CDSs under Levy models see papers on my website

check out Wilmott Issue March 2005 : Mandelbrot's Extremism, p.97-103