Related papers: A Quantization Approach to the Counterparty Credit…
In recent years, the counterparty credit risk measure, namely the default risk in \emph{Over The Counter} (OTC) derivatives contracts, has received great attention by banking regulators, specifically within the frameworks of \emph{Basel II}…
This paper studies a valuation framework for financial contracts subject to reference and counterparty default risks with collateralization requirement. We propose a fixed point approach to analyze the mark-to-market contract value with…
Over-the-counter derivatives have contributed significantly to the effectiveness and efficiency of the international financial system but also entail significant counterparty credit risk. Collateralization is one of the most important and…
This article presents a generic model for pricing financial derivatives subject to counterparty credit risk. Both unilateral and bilateral types of credit risks are considered. Our study shows that credit risk should be modeled as American…
We introduce a new method to calculate the credit exposure of European and path-dependent options. The proposed method is able to calculate accurate expected exposure and potential future exposure profiles under the risk-neutral and the…
Modeling counterparty risk is computationally challenging because it requires the simultaneous evaluation of all the trades with each counterparty under both market and credit risk. We present a multi-Gaussian process regression approach,…
We depart from the usual methods for pricing contracts with the counterparty credit risk found in most of the existing literature. In effect, typically, these models do not account for either systemic effects or at-first-default contagion…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
The valuation of over-the-counter derivatives is subject to a series of valuation adjustments known as xVA, which pose additional risks for financial institutions. Associated risk measures, such as the value-at-risk of an underlying…
To quantify an operational risk capital charge under Basel II, many banks adopt a Loss Distribution Approach. Under this approach, quantification of the frequency and severity distributions of operational risk involves the bank's internal…
The importance of counterparty credit risk to the derivative contracts was demonstrated consistently throughout the financial crisis of 2008. Accurate valuation of Credit value adjustment (CVA) is essential to reflect the economic values of…
The research presented in this work is motivated by some recent papers regarding hedging and valuation of financial securities subject to funding costs, collateralization and counterparty credit risk. Our goal is to provide a sound…
Financial derivative pricing is a significant challenge in finance, involving the valuation of instruments like options based on underlying assets. While some cases have simple solutions, many require complex classical computational methods…
Financial derivatives are contracts that can have a complex payoff dependent upon underlying benchmark assets. In this work, we present a quantum algorithm for the Monte Carlo pricing of financial derivatives. We show how the relevant…
The Monte Carlo (MC) method is the most common technique used for uncertainty quantification, due to its simplicity and good statistical results. However, its computational cost is extremely high, and, in many cases, prohibitive.…
Counterparty risk denotes the risk that a party defaults in a bilateral contract. This risk not only depends on the two parties involved, but also on the risk from various other contracts each of these parties holds. In rather informal…
The valuation of counterparty risk for single name credit derivatives requires the computa- tion of joint distributions of default times of two default-prone entities. For a Merton-type model, we derive some formulas for these joint…
The purpose of this paper is to design an algorithm for the computation of the counterparty risk which is competitive in regards of a brute force "Monte-Carlo of Monte-Carlo" method (with nested simulations). This is achieved using marked…
In recent years, a CRA (Credit Risk Analysis) quantum algorithm with a quadratic speedup over classical analogous methods has been introduced. We propose a new variant of this quantum algorithm with the intent of overcoming some of the most…
We present a dialogue on Funding Costs and Counterparty Credit Risk modeling, inclusive of collateral, wrong way risk, gap risk and possible Central Clearing implementation through CCPs. This framework is important following the fact that…