Related papers: Clean Valuation Framework for the USD Silo
We develop a model where currency issuers provide liquidity, while users in a trade network choose currency usage for trade settlement. We identify a feedback mechanism where a user's currency preference spillovers to others and increases…
We develop an arbitrage-free framework for consistent valuation of derivative trades with collateralization, counterparty credit gap risk, and funding costs, following the approach first proposed by Pallavicini and co-authors in 2011. Based…
In this work we want to provide a general principle to evaluate the CVA (Credit Value Adjustment) for a vulnerable option, that is an option subject to some default event, concerning the solvability of the issuer. CVA is needed to evaluate…
Reinforcement learning can interact with the environment and is suitable for applications in decision control systems. Therefore, we used the reinforcement learning method to establish a foreign exchange transaction, avoiding the…
In this note we sketch an initial tentative approach to funding costs analysis and management for contracts with bilateral counterparty risk in a simplified setting. We depart from the existing literature by analyzing the issue of funding…
Many countries have adopted negative interest rate policies with tiering remuneration, which allows for exemption from negative rates. This practice has led to higher interbank trading volumes, with market rates ranging between zero and the…
We study stable allocations in an exchange economy with indivisible goods. The problem is well-known to be challenging, and rich enough to encode fundamentally unstable economies, such as the roommate problem. Our approach stems from…
In this work we present a general representation formula for the price of a vulnerable European option, and the related CVA in stochastic (either rough or not) volatility models for the underlying's price, when admitting correlation with…
Data races are a notorious problem in parallel programming. There has been great research interest in type systems that statically prevent data races. Despite the progress in the safety and usability of these systems, lots of existing…
Current post-trade clearing systems rely almost exclusively on cash or cash-like collateral, leaving vast reserves of short-term liquidity embedded in trade credit outside formal settlement infrastructures. A key barrier to integrating this…
The importance of counterparty credit risk to the derivative contracts was demonstrated consistently throughout the financial crisis of 2008. Accurate valuation of Credit value adjustment (CVA) is essential to reflect the economic values of…
A three-dimensional extension of the structural default model with firms' values driven by correlated diffusion processes is presented. Green's function based semi-analytical methods for solving the forward calibration problem and backward…
The Tangle is the data structure used to store transactions in the IOTA cryptocurrency. In the Tangle, each block has two parents. As a result, the blocks do not form a chain, but a directed acyclic graph. In traditional Blockchain, a new…
The medium of exchange of the traditional economy is mainly the fiat currency of each country or region, and when cross-border transactions occur, they need to be settled according to the exchange rate. In the AI world, however, the medium…
We study an electricity market clearing formulation that seeks to remunerate spatio-temporal, load-shifting flexibility provided by data centers (DaCes). Load-shifting flexibility is a key asset for power grid operators as they aim to…
In this work we study the price-hedge issue for general defaultable contracts characterized by the presence of a contingent CSA of switching type. This is a contingent risk mitigation mechanism that allow the counterparties of a defaultable…
Digital signatures are crucial for securing Central Bank Digital Currencies (CBDCs) transactions. Like most forms of digital currencies, CBDC solutions rely on signatures for transaction authenticity and integrity, leading to major issues…
We prove that the variance swap rate (fair strike) equals the price of a co-terminal European-style contract when the underlying is an exponential Markov process, time-changed by an arbitrary continuous stochastic clock, which has arbitrary…
In the paper we study dynamics of the arbitrage prices of credit default swaps within a hazard process model of credit risk. We derive these dynamics without postulating that the immersion property is satisfied between some relevant…
Bilateral CVA as currently implement has the counterintuitive effect of profiting from one's own widening CDS spreads, i.e. increased risk of default, in practice. The unified picture of CVA and liquidity introduced by Morini & Prampolini…