Related papers: A Quantization Approach to the Counterparty Credit…
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.…
Collateral optimization refers to the systematic allocation of financial assets to satisfy obligations or secure transactions, while simultaneously minimizing costs and optimizing the usage of available resources. {This involves assessing…
Pricing options is an important problem in financial engineering. In many scenarios of practical interest, financial option prices associated to an underlying asset reduces to computing an expectation w.r.t.~a diffusion process. In general,…
Even in the simple one-factor credit portfolio model that underlies the Basel II regulatory capital rules coming into force in 2007, the exact contributions to credit value-at-risk can only be calculated with Monte-Carlo simulation or with…
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…
We study the impact of central clearing of over-the-counter (OTC) transactions on counterparty exposures in a market with OTC transactions across several asset classes with heterogeneous characteristics. The impact of introducing a central…
This paper is the documentation of a pre-study performed by AXA Konzern AG in collaboration with Fraunhofer ITWM to assess the relevance of quantum computing for the insurance industry. Beside a general overview of the status quo of quantum…
We introduce a two-agent problem which is inspired by price asymmetry arising from funding difference. When two parties have different funding rates, the two parties deduce different fair prices for derivative contracts even under the same…
We study dynamic hedging of counterparty risk for a portfolio of credit derivatives. Our empirically driven credit model consists of interacting default intensities which ramp up and then decay after the occurrence of credit events. Using…
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…
This article develops a Bayesian approach for estimating panel quantile regression with binary outcomes in the presence of correlated random effects. We construct a working likelihood using an asymmetric Laplace (AL) error distribution and…
Accurate and efficient pricing of multi-asset basket options poses a significant challenge, especially when dealing with complex real-world data. In this work, we investigate the role of quantum-enhanced uncertainty modeling in financial…
We review and apply Quasi Monte Carlo (QMC) and Global Sensitivity Analysis (GSA) techniques to pricing and risk management (greeks) of representative financial instruments of increasing complexity. We compare QMC vs standard Monte Carlo…
Sequential Monte Carlo (SMC) methods have successfully been used in many applications in engineering, statistics and physics. However, these are seldom used in financial option pricing literature and practice. This paper presents SMC method…
Barrier options are one of the most widely traded exotic options on stock exchanges. In this paper, we develop a new stochastic simulation method for pricing barrier options and estimating the corresponding execution probabilities. We show…
This paper proposes two numerical solution based on Product Optimal Quantization for the pricing of Foreign Echange (FX) linked long term Bermudan options e.g. Bermudan Power Reverse Dual Currency options, where we take into account…
Currency arbitrage leverages price discrepancies in currency exchange rates across different currency pairs to gain risk-free profits. It involves multiple trading, where short-lived price discrepancies require real-time, high-speed…
Credibility theory provides tools to obtain better estimates by combining individual data with sample information. We apply the Credibility theory to a Uniform distribution that is used in testing the reliability of forecasting an interest…
Conditional forecasts of risk measures play an important role in internal risk management of financial institutions as well as in regulatory capital calculations. In order to assess forecasting performance of a risk measurement procedure,…
Uncertainty quantification (UQ) includes the characterization, integration, and propagation of uncertainties that result from stochastic variations and a lack of knowledge or data in the natural world. Monte Carlo (MC) method is a…