CVA and vulnerable options pricing by correlation expansions
Computational Finance
2018-11-20 v1
Abstract
We consider the problem of computing the Credit Value Adjustment ({CVA}) of a European option in presence of the Wrong Way Risk ({WWR}) in a default intensity setting. Namely we model the asset price evolution as solution to a linear equation that might depend on different stochastic factors and we provide an approximate evaluation of the option's price, by exploiting a correlation expansion approach, introduced in \cite{AS}. We compare the numerical performance of such a method with that recently proposed by Brigo et al. (\cite{BR18}, \cite{BRH18}) in the case of a call option driven by a GBM correlated with the CIR default intensity. We additionally report some numerical evaluations obtained by other methods.
Cite
@article{arxiv.1811.07294,
title = {CVA and vulnerable options pricing by correlation expansions},
author = {Fabio Antonelli and Alessandro Ramponi and Sergio Scarlatti},
journal= {arXiv preprint arXiv:1811.07294},
year = {2018}
}
Comments
21 pages