Related papers: KVA: Capital Valuation Adjustment
Conditional Value at Risk (CVaR) is a prominent risk measure that is being used extensively in various domains. We develop a new formula for the gradient of the CVaR in the form of a conditional expectation. Based on this formula, we…
We consider the problem of constructing an appropriate multivariate model for the study of the counterparty credit risk in credit rating migration problem. For this financial problem different multivariate Markov chain models were proposed.…
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…
In the context of risk measures, the capital allocation problem is widely studied in the literature where different approaches have been developed, also in connection with cooperative game theory and systemic risk. Although static capital…
We consider a two-factor model for the valuation of a non callable defaultable bond which pays coupons at certain given dates. The model under consideration is the Jump to Default Constant Elasticity of Variance (JDCEV) model. The JDCEV…
Basel II and Solvency 2 both use the Value-at-Risk (VaR) as the risk measure to compute the Capital Requirements. In practice, to calibrate the VaR, a normal approximation is often chosen for the unknown distribution of the yearly log…
Affine Diffusion dynamics are frequently used for Valuation Adjustments (xVA) calculations due to their analytic tractability. However, these models cannot capture the market-implied skew and smile, which are relevant when computing xVA…
Extended resolution shows that auxiliary variables are very powerful in theory. However, attempts to exploit this potential in practice have had limited success. One reasonably effective method in this regard is bounded variable addition…
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…
This article presents a deep reinforcement learning approach to price and hedge financial derivatives. This approach extends the work of Guo and Zhu (2017) who recently introduced the equal risk pricing framework, where the price of a…
Conditional Value-at-Risk (CoVaR) quantifies systemic financial risk by measuring the loss quantile of one asset, conditional on another asset experiencing distress. We develop a Transformer-based methodology that integrates financial news…
We present a semi-static hedging algorithm for callable interest rate derivatives under an affine, multi-factor term-structure model. With a traditional dynamic hedge, the replication portfolio needs to be updated continuously through time…
We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations,…
Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR) are two risk measures which are widely used in the practice of risk management. This paper deals with the problem of computing both VaR and CVaR using stochastic approximation (with…
When self-adaptive systems encounter changes within their surrounding environments, they enact tactics to perform necessary adaptations. For example, a self-adaptive cloud-based system may have a tactic that initiates additional computing…
This paper closely examines theoretical and practical aspects of the widely used discounted cash flows (DCF) valuation method. It assesses its potentials as well as several weaknesses. A special emphasize is being put on the valuation of…
This paper extends the utility maximization literature by combining partial information and (robust) regulatory constraints. Partial information is characterized by the fact that the stock price itself is observable by the optimizing…
The analysis of credit risk is crucial for the efficient operation of financial institutions. Quantum Amplitude Estimation (QAE) offers the potential for a quadratic speed-up over classical methods used to estimate metrics such as Value at…
We develop a novel multivariate semi-parametric framework for joint portfolio Value-at-Risk (VaR) and Expected Shortfall (ES) forecasting. Unlike existing univariate semi-parametric approaches, the proposed framework explicitly models the…
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…