Related papers: DVA for Assets
The practice of valuation by marking-to-market with current trading prices is seriously flawed. Under leverage the problem is particularly dramatic: due to the concave form of market impact, selling always initially causes the expected…
This paper develops a flexible and computationally efficient multivariate volatility model, which allows for dynamic conditional correlations and volatility spillover effects among financial assets. The new model has desirable properties…
A new methodology for incorporating LGD correlation effects into the Basel II risk weight functions is introduced. This methodology is based on modelling of LGD and default event with a single loss variable. The resulting formulas for…
Risk measure forecast and model have been developed in order to not only provide better forecast but also preserve its (empirical) property especially coherent property. Whilst the widely used risk measure of Value-at-Risk (VaR) has shown…
We present a unified framework for computing CVA sensitivities, hedging the CVA, and assessing CVA risk, using probabilistic machine learning meant as refined regression tools on simulated data, validatable by low-cost companion Monte Carlo…
We develop a novel framework for computing the total valuation adjustment (XVA) of a European claim accounting for funding costs, counterparty credit risk, and collateralization. Based on no-arbitrage arguments, we derive the nonlinear…
We propose a comprehensive treatment of the leverage effect, i.e. the relationship between returns and volatility of a specific asset, focusing on energy commodities futures, namely Brent and WTI crude oils, natural gas and heating oil.…
We consider a model of debt management, where a sovereign state trade some bonds to service the debt with a pool of risk-neutral competitive foreign investors. At each time, the government decides which fraction of the gross domestic…
The global financial crisis of 2007-2009 highlighted the crucial role systemic risk plays in ensuring stability of financial markets. Accurate assessment of systemic risk would enable regulators to introduce suitable policies to mitigate…
The capitalization-weighted total relative variation $\sum_{i=1}^d \int_0^\cdot \mu_i (t) \mathrm{d} \langle \log \mu_i \rangle (t)$ in an equity market consisting of a fixed number $d$ of assets with capitalization weights $\mu_i (\cdot)$…
Valuation adjustments, collectively named XVA, play an important role in modern derivatives pricing to take into account additional price components such as counterparty and funding risk premia. They are an exotic price component carrying a…
The question of how to stabilize financial systems has attracted considerable attention since the global financial crisis of 2007-2009. Recently, Beale et al. ("Individual versus systemic risk and the regulator's dilemma", Proc Natl Acad…
This paper develops a two-dimensional structural framework for valuing credit default swaps and corporate bonds in the presence of default contagion. Modelling the values of related firms as correlated geometric Brownian motions with…
This article prices OTC derivatives with either an exogenously determined initial margin profile or endogenously approximated initial margin. In the former case, margin valuation adjustment (MVA) is defined as the liability-side discounted…
We present a class of flexible and tractable static factor models for the term structure of joint default probabilities, the factor copula models. These high-dimensional models remain parsimonious with pair-copula constructions, and nest…
We theorize the financial health of a company and the risk of its default. A company is financially healthy as long as its equilibrium in the financial system is maintained, which depends on the cost attributable to the probability that…
The impact of a stress scenario of default events on the loss distribution of a credit portfolio can be assessed by determining the loss distribution conditional on these events. While it is conceptually easy to estimate loss distributions…
We revisit the problem of pricing and hedging plain vanilla single-currency interest rate derivatives using multiple distinct yield curves for market coherent estimation of discount factors and forward rates with different underlying rate…
A variance swap is a derivative with a path-dependent payoff which allows investors to take positions on the future variability of an asset. In the idealised setting of a continuously monitored variance swap written on an asset with…
It is well documented that a model for the underlying asset price process that seeks to capture the behaviour of the market prices of vanilla options needs to exhibit both diffusion and jump features. In this paper we assume that the asset…