Related papers: Pricing credit default swaps with bilateral value …
We present a dialogue on Counterparty Credit Risk touching on Credit Value at Risk (Credit VaR), Potential Future Exposure (PFE), Expected Exposure (EE), Expected Positive Exposure (EPE), Credit Valuation Adjustment (CVA), Debit Valuation…
A standard quantitative method to access credit risk employs a factor model based on joint multivariate normal distribution properties. By extending a one-factor Gaussian copula model to make a more accurate default forecast, this paper…
In this work, a pricing model for a defaultable corporate bond with credit rating migration risk is established. The model turns out to be a free boundary problem with two free boundaries. The latter are the level sets of the solution but…
In this paper we develop structural first passage models (AT1P and SBTV) with time-varying volatility and characterized by high tractability, moving from the original work of Brigo and Tarenghi (2004, 2005) [19] [20] and Brigo and Morini…
We provide a general and flexible approach to LIBOR modeling based on the class of affine factor processes. Our approach respects the basic economic requirement that LIBOR rates are non-negative, and the basic requirement from mathematical…
Haircutting non-cash collateral has become a key element of the post-crisis reform of the shadow banking system and OTC derivatives markets. This article develops a parametric haircut model by expanding haircut definitions beyond the…
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…
This paper considers the modelling of collateralized debt obligations (CDOs). We propose a top-down model via forward rates generalizing Filipovi\'c, Overbeck and Schmidt (2009) to the case where the forward rates are driven by a finite…
Based on supermodularity ordering properties, we show that convex risk measures of credit losses are nondecreasing w.r.t. credit-credit and, in a wrong-way risk setup, credit-market, covariances of elliptically distributed latent factors.…
Our goal is to analyze the system of Hamilton-Jacobi-Bellman equations arising in derivative securities pricing models. The European style of an option price is constructed as a difference of the certainty equivalents to the value functions…
This paper builds a finite-horizon model to study the role of physical collateral in a model of strategic defaults, when the borrower can develop reputation for honesty. Asset ownership increases attractiveness of the reputational channel:…
We study the pricing and the hedging of claim {\psi} which depends on the default times of two firms A and B. In fact, we assume that, in the market, we can not buy or sell any defaultable bond of the firm B but we can only trade…
Every prediction is ultimately used in a downstream task. Consequently, evaluating prediction quality is more meaningful when considered in the context of its downstream use. Metrics based solely on predictive performance often diverge from…
We consider a structural model where the survival/default state is observed together with a noisy version of the firm value process. This assumption makes the model more realistic than most of the existing alternatives, but triggers…
We tackle the problem of pricing Chinese convertible bonds(CCBs) using Monte Carlo simulation and dynamic programming. At each exercise time, we use the state variables of the underlying stock to regress the continuation value, and apply…
Alternative risk-free rates (RFRs) play a central role in the reform of interest rate benchmarks. We study a model for RFRs driven by a general affine process. Under minimal assumptions, we derive explicit valuation formulas for…
This paper develops a deep learning-based framework for pricing convertible bonds with path-dependent contractual features, namely downward conversion price reset and issuer call clauses under rolling-window trigger rules, which are…
This paper addresses the problem of pricing involved financial derivatives by means of advanced of deep learning techniques. More precisely, we smartly combine several sophisticated neural network-based concepts like differential machine…
The SABR model is shortly presented and the volatility swap explained. The fair value for a volatility swap is then computed using the usual theory in financial mathematics. An analytical solution using confluent hypergeometric functions is…
The equilibration of two coupled reservoirs is studied using a Green function approach which is suitable for future development with the closed time path method. The problem is solved in two parameterizations, in order to demonstrate the…