Efficient Computation of Various Valuation Adjustments Under Local L\'evy Models
Mathematical Finance
2019-05-07 v1
Abstract
Various valuation adjustments, or XVAs, can be written in terms of non-linear PIDEs equivalent to FBSDEs. In this paper we develop a Fourier-based method for solving FBSDEs in order to efficiently and accurately price Bermudan derivatives, including options and swaptions, with XVA under the flexible dynamics of a local L\'evy model: this framework includes a local volatility function and a local jump measure. Due to the unavailability of the characteristic function for such processes, we use an asymptotic approximation based on the adjoint formulation of the problem.
Keywords
Cite
@article{arxiv.1905.01706,
title = {Efficient Computation of Various Valuation Adjustments Under Local L\'evy Models},
author = {Anastasia Borovykh and Andrea Pascucci and Cornelis W. Oosterlee},
journal= {arXiv preprint arXiv:1905.01706},
year = {2019}
}