Related papers: DVA for Assets
We study the pricing and hedging of derivative securities with uncertainty about the volatility of the underlying asset. Rather than taking all models from a prespecified class equally seriously, we penalise less plausible ones based on…
In this theoretical paper, I propose creation of a venture bank, able to multiply the capital of a venture capital firm by at least 47 times, without requiring access to the Federal Reserve or other central bank apart from settlement. This…
For credit risk management purposes in general, and for allocation of regulatory capital by banks in particular (Basel II), numerical assessments of the credit-worthiness of borrowers are indispensable. These assessments are expressed in…
In this paper we introduce a novel approach to risk estimation based on nonlinear factor models - the "StressVaR" (SVaR). Developed to evaluate the risk of hedge funds, the SVaR appears to be applicable to a wide range of investments. Its…
We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…
Foreign exchange and credit derivatives increase the bank's contributions to systemic risk. Interest rate derivatives decrease it. The proportion of non-performing loans over total loans and the leverage ratio have stronger impact on…
The collateral choice option allows a collateral-posting party the opportunity to change the type of security in which the collateral is deposited. Due to non-zero collateral basis spreads, this optionality significantly impacts asset…
We analyze the errors arising from discrete readjustment of the hedging portfolio when hedging options in exponential Levy models, and establish the rate at which the expected squared error goes to zero when the readjustment frequency…
We compare observed corporate cumulative default probabilities to those calculated using a stochastic model based on an extension of the work of Black and Cox and find that corporations default as if via diffusive dynamics. The model, based…
Recent financial disasters emphasised the need to investigate the consequence associated with the tail co-movements among institutions; episodes of contagion are frequently observed and increase the probability of large losses affecting…
While abundant empirical studies support the long-range dependence (LRD) of mortality rates, the corresponding impact on mortality securities are largely unknown due to the lack of appropriate tractable models for valuation and risk…
We develop a semi-static framework for the variance-optimal hedging of multi-asset derivatives exposed to correlation and covariance risk. The approach combines continuous-time dynamic trading in the underlying assets with a static…
We study the incentives of banks in a financial network, where the network consists of debt contracts and credit default swaps (CDSs) between banks. One of the most important questions in such a system is the problem of deciding which of…
This paper investigates calculations of robust funding valuation adjustment (FVA) for over the counter (OTC) derivatives under distributional uncertainty using Wasserstein distance as the ambiguity measure. Wrong way funding risk can be…
This paper investigates dividend optimization of an insurance corporation under a more realistic model which takes into consideration refinancing or capital injections. The model follows the compound Poisson framework with credit interest…
We study option pricing and hedging with uncertainty about a Black-Scholes reference model which is dynamically recalibrated to the market price of a liquidly traded vanilla option. For dynamic trading in the underlying asset and this…
XVA is a material component of a trade valuation and hence it must impact the decision to exercise options within a given netting set. This is true for both unsecured trades and secured / cleared trades where KVA and MVA play a material…
Intuitively, the default risk of a single borrower is higher when her or his assets and debt are denominated in different currencies. Additionally, the default dependence of borrowers with assets and debt in different currencies should be…
In this paper, we investigate the optimal management of defined contribution (abbr. DC) pension plan under relative performance ratio and Value-at-Risk (abbr. VaR) constraint. Inflation risk is introduced in this paper and the financial…
The current global financial system forms a highly interconnected network where a default in one of its nodes can propagate to many other nodes, causing a catastrophic avalanche effect. In this paper we consider the problem of reducing the…