Related papers: A Top-down Model for Cash CLO
This paper describes a consistent and arbitrage-free pricing methodology for bespoke CDO tranches. The proposed method is a multi-factor extension to the (Li 2009) model, and it is free of the known flaws in the current standard pricing…
This paper covers a massive acceleration of Monte-Carlo based pricing method for financial products and financial derivatives. The method is applicable in risk management settings, where a financial product has to be priced under a number…
Wholesale electricity market designs in practice do not provide the market participants with adequate mechanisms to hedge their financial risks. Demanders and suppliers will likely face even greater risks with the deepening penetration of…
We present a new model for credit index derivatives, in the top-down approach. This model has a dynamic loss intensity process with volatility and jumps and can include counterparty risk. It handles CDS, CDO tranches, Nth-to-default and…
This paper describes a flexible and tractable bottom-up dynamic correlation modelling framework with a consistent stochastic recovery specification. The stochastic recovery specification only models the first two moments of the spot…
In the top-down approach to multi-name credit modeling, calculation of singe name sensitivities appears possible, at least in principle, within the so-called random thinning (RT) procedure which dissects the portfolio risk into individual…
This paper introduces a new semi-parametric approach to the pricing and risk management of bespoke CDO tranches, with a particular attention to bespokes that need to be mapped onto more than one reference portfolio. The only user input in…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…
This paper addresses a key challenge in CDO modeling: achieving a perfect fit to market prices across all tranches using a single, consistent model. The existence of such a perfect-fit model implies the absence of arbitrage among CDO…
Organizations use cash management models to control balances to both avoid overdrafts and obtain a profit from short-term investments. Most management models are based on control bounds which are derived from the assumption of a particular…
Models of complex systems often consist of multiple interconnected subsystem/component models that are developed by multi-disciplinary teams of engineers or scientists. To ensure that such interconnected models can be applied for the…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
We study how delegating pricing to large language models (LLMs) can facilitate collusion in a duopoly when both sellers rely on the same pre-trained model. The LLM is characterized by (i) a propensity parameter capturing its internal bias…
This paper aims to extend downside protection to a hedge fund investment portfolio based on shared loss fee structures that have become increasing popular in the market. In particular, we consider a second tranche and suggest the purchase…
We introduce a new Self-Organized Criticality (SOC) model for simulating price evolution in an artificial financial market, based on a multilayer network of traders. The model also implements, in a quite realistic way with respect to…
We present an approach to market-consistent multi-period valuation of insurance liability cash flows based on a two-stage valuation procedure. First, a portfolio of traded financial instrument aimed at replicating the liability cash flow is…
After the beginning of the credit and liquidity crisis, financial institutions have been considering creating a convertible-bond type contract focusing on Capital. Under the terms of this contract, a bond is converted into equity if the…
A new class of risk measures called cash sub-additive risk measures is introduced to assess the risk of future financial, nonfinancial and insurance positions. The debated cash additive axiom is relaxed into the cash sub additive axiom to…
This paper presents a numerical model to solve the problem of cash accumulation strategies for products with an unknown future price, like assets. Stock prices are modeled by a discretized Wiener Process, and by the means of ordinary…
Pricing composite and quanto contracts requires a joint model of both the underlying asset and the exchange rate. In this contribution, we explore the potential of local-correlation models to address the challenges of calibrating synthetic…