Related papers: CVA for Bilateral Counterparty Risk under Alternat…
Quantum mechanics is well known to accelerate statistical sampling processes over classical techniques. In quantitative finance, statistical samplings arise broadly in many use cases. Here we focus on a particular one of such use cases,…
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…
In several real-world applications involving decision making under uncertainty, the traditional expected value objective may not be suitable, as it may be necessary to control losses in the case of a rare but extreme event. Conditional…
General wrong way risk (WWR) estimation is necessary for regulatory CVA capital and useful for pricing CVA and FVA. We introduce a model independent method for calculating WWR and update the definition of WWR to deal with the lack of…
In this paper we derive robust super- and subhedging dualities for contingent claims that can depend on several underlying assets. In addition to strict super- and subhedging, we also consider relaxed versions which, instead of eliminating…
Initial margin requirements are becoming an increasingly common feature of derivative markets. However, while the valuation of derivatives under collateralisation (Piterbarg 2010, Piterbarg2012), under counterparty risk with unsecured…
This paper proposes a risk-averse approach to energy storage price arbitrage, leveraging conformal uncertainty quantification for electricity price predictions. The method addresses the significant challenges posed by the inherent…
A common approach to valuing exotic options involves choosing a model and then determining its parameters to fit the volatility surface as closely as possible. We refer to this as the model calibration approach (MCA). A disadvantage of MCA…
The popularity of Conditional Value-at-Risk (CVaR), a risk functional from finance, has been growing in the control systems community due to its intuitive interpretation and axiomatic foundation. We consider a nonstandard optimal control…
Recently, incomplete-market techniques have been used to develop a model applicable to credit default swaps (CDSs) with results obtained that are quite different from those obtained using the market-standard model. This article makes use of…
In this paper, the author considers the numerical computation of CVA for large systems by Mote Carlo methods. He introduces two types of stochastic mesh methods for the computations of CVA. In the first method, stochastic mesh method is…
In this paper we present a novel approach for firm default probability estimation. The methodology is based on multivariate contingent claim analysis and pair copula constructions. For each considered firm, balance sheet data are used to…
We consider a liquidation problem in which a risk-averse trader tries to liquidate a fixed quantity of an asset in the presence of market impact and random price fluctuations. The trader encounters a trade-off between the transaction costs…
The collateral choice option gives the collateral posting party the opportunity to switch between different collateral currencies which is well-known to impact the asset price. Quantification of the option's value is of practical importance…
This paper describes a consistent and arbitrage-free pricing methodology for bespoke CDO tranches. The proposed method is a multi-factor extension to the (Li 2009) model, and it is free of the known flaws in the current standard pricing…
Conditional value-at-risk (CVaR) precisely characterizes the influence that rare, catastrophic events can exert over decisions. Such characterizations are important for both normal decision-making and for psychiatric conditions such as…
In this paper, we consider the problem of equal risk pricing and hedging in which the fair price of an option is the price that exposes both sides of the contract to the same level of risk. Focusing for the first time on the context where…
A counterparty credit limit (CCL) is a limit that is imposed by a financial institution to cap its maximum possible exposure to a specified counterparty. CCLs help institutions to mitigate counterparty credit risk via selective…
Many-to-many matching with contracts is studied in the framework of revealed preferences. All preferences are described by choice functions that satisfy natural conditions. Under a no-externality assumption individual preferences can be…
Wholesale electricity market designs in practice do not provide the market participants with adequate mechanisms to hedge their financial risks. Demanders and suppliers will likely face even greater risks with the deepening penetration of…