Related papers: Collateralized CVA Valuation with Rating Triggers …
Covariate adjustment and methods of incorporating historical data in randomized clinical trials (RCTs) each provide opportunities to increase trial power. We unite these approaches for the analysis of RCTs with binary outcomes based on the…
We discuss the binary nature of funding impact in derivative valuation. Under some conditions, funding is either a cost or a benefit, i.e., one of the lending/borrowing rates does not play a role in pricing derivatives. When derivatives are…
This work studies the dynamic risk management of the risk-neutral value of the potential credit losses on a portfolio of derivatives. Sensitivities-based hedging of such liability is sub-optimal because of bid-ask costs, pricing models…
Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between…
We present a continuous-time maximum likelihood estimation methodology for credit rating transition probabilities, taking into account the presence of censored data. We perform rolling estimates of the transition matrices with exponential…
Over-the-counter derivatives have contributed significantly to the effectiveness and efficiency of the international financial system but also entail significant counterparty credit risk. Collateralization is one of the most important and…
In this paper we extend the existing literature on xVA along three directions. First, we enhance current BSDE-based xVA frameworks to include initial margin in presence of defaults. Next, we solve the consistency problem that arises when…
There exists a range of different models for estimating and simulating credit risk transitions to optimally manage credit risk portfolios and products. In this chapter we present a Coupled Markov Chain approach to model rating transitions…
The development of credit valuation adjustment (CVA) (valuation adjustments [XVA]) [Green] has increased the importance of simple interest rate models such as the Hull-White model [Tan14] [Tsuchiya]. This is because the XVA model is an FX…
We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…
The research presented in this work is motivated by recent papers by Brigo et al. (2011), Burgard and Kjaer (2009), Cr\'epey (2012), Fujii and Takahashi (2010), Piterbarg (2010) and Pallavicini et al. (2012). Our goal is to provide a sound…
In this study, we propose a new definition of multivariate conditional value-at-risk (MCVaR) as a set of vectors for discrete probability spaces. We explore the properties of the vector-valued MCVaR (VMCVaR) and show the advantages of…
Derivative pricing is about cash flow discounting at the riskfree rate. This teaching has lost its meaning post the financial crisis, due to the addition of extra value adjustments (XVA), which also made derivatives pricing and valuation a…
Leveraging external or historical data to improve the efficiency of randomized clinical trials without introducing bias or inflating the Type I error rate remains challenging. Recent work on externally trained prognostic scores, such as…
In this paper, we have studied the pricing of a continuously collateralized CDS. We have made use of the "survival measure" to derive the pricing formula in a straightforward way. As a result, we have found that there exists irremovable…
In this paper, we develop a theoretical framework for bounding the CVaR of a random variable $X$ using another related random variable $Y$, under assumptions on their cumulative and density functions. Our results yield practical tools for…
Reinforcement learning from verifiable rewards (RLVR) has emerged as a central technique for improving the reasoning capabilities of large language models. Despite its effectiveness, how response-level rewards translate into token-level…
Cash collateral is perfect in that it provides simultaneous counterparty credit risk protection and derivatives funding. Securities are imperfect collateral, because of collateral segregation or differences in CSA haircuts and repo…
We present two methodologies on the estimation of rating transition probabilities within Markov and non-Markov frameworks. We first estimate a continuous-time Markov chain using discrete (missing) data and derive a simpler expression for…
We consider the pricing and hedging of counterparty credit risk and funding when there is no possibility to hedge the jump to default of either the bank or the counterparty. This represents the situation which is most often encountered in…