I don't think that is happening in practice. Your liability as a client of a defaulted bank will still exist. The only change might be that you will have to repay the pv to the administrator at a different time than the one specified in the contract.

<t>Using your example.... why do you think that the counterparty that gets the loan from the bank and it also gets transferred the recovery assumptions is like having credit protection on the bank??The counterparty that gets the loan isn't going to receive any cashflow from the bank, so protection f...

<t>Just found this discussion. Some times you do things just because they make you feel nice. This I believe is true for quant finance. Quite a few of us have faced management or stars (as described by EscapeArtist999) that understand nothing of what we do....I guess after a point you learn to live ...

I remember we had the initial topic as a final project on the CQF back in 2008. It's interesting to see that people here still discuss it.

Thanks for the reply. I was actually referring to the 1D implementation... At the moment I am having a look at the 3D note that you have published and this point is clarified there.

<t>Revisiting this topic, Cuch i was looking into the C++ implementation that you have posted in your website and i have a question for you.In the upward sweep in your code where you calculate U[j] you add a term rhs[j]. I don't see where does this term comes from ? Been through the relevant paper b...

<t>QuoteOriginally posted by: lmzHowever I'm not sure about how to obtain this kind of volatility surface from market data and this is not described in any book or article I've seen.On creating the volatility surface from market data why don't you try as a start the volatility cube methodology that ...

another solution could be to use the whole swap curve in the simulation. i.e. simulate the first year with the 1y swap rate, from 1 to 2 with the 2y swap rate etc....

You could use a stochastic recovery, but do you really need it...Usually people set a recovery assumption and then get the hazard rates....and the construct the risky DFs.

I suppose you have in mind something like the DXY index on BBG. Not so many stuff that I have found on this kind of pricing.

<t>QuoteOriginally posted by: KhoshtipThe "underlying" is the european call option. The issuer has the right to call this option, either at any time, i.e. american, or at pre-specified dates, i.e. bermudan, paying a penalty fee.Since the option does not pay dividend it should not be optimal to exerc...

Maybe mediterranean places is the answer!

There's plenty of it in Amsterdam

<t>All these proposals/thoughts have good points, but we should never forget the human factor. Greediness..... will make people find loopholes even in the best set of rules or lobby with lawmakers/politicians in exchange for supporting their political campaign.Fear......if you publish both market va...

Ok we agree that there should regulation that is up to date, in order to protect competition and free markets. However this should be flexible enough. Moreover regulation alone cannot prevent everything. Mentality of people along with regulation can improve things.