Related papers: Central Clearing Valuation Adjustment
Cross-validation (CV) is one of the main tools for performance estimation and parameter tuning in machine learning. The general recipe for computing CV estimate is to run a learning algorithm separately for each CV fold, a computationally…
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…
We introduce the general arbitrage-free valuation framework for counterparty risk adjustments in presence of bilateral default risk, including default of the investor. We illustrate the symmetry in the valuation and show that the adjustment…
Cross-validation (CV) is a technique for evaluating the ability of statistical models/learning systems based on a given data set. Despite its wide applicability, the rather heavy computational cost can prevent its use as the system size…
Wrong-way risk in counterparty and funding exposures is most dramatic in the situations of systemic crises and tails events. A consistent model of wrong-way risk (WWR) is developed here with the probability-weighted addition of tail events…
Although not a formal pricing consideration, gap risk or hedging errors are the norm of derivatives businesses. Starting with the gap risk during a margin period of risk of a repurchase agreement (repo), this article extends the…
A recursive free cash flow model (FCFF) is proposed to determine the corporate value of a company in an efficient market in which new market and company-specific information is modelled by additive white noise. The stochastic equations of…
Canonical Variate Analysis (CVA) is a multivariate statistical technique and a direct application of Linear Discriminant Analysis (LDA) that aims to find linear combinations of variables that best differentiate between groups in a dataset.…
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…
A positive correlation between exposure and counterparty credit risk gives rise to the so-called Wrong-Way Risk (WWR). Even after a decade of the financial crisis, addressing WWR in both sound and tractable ways remains challenging.…
We take the holistic approach of computing an OTC claim value that incorporates credit and funding liquidity risks and their interplays, instead of forcing individual price adjustments: CVA, DVA, FVA, KVA. The resulting nonlinear…
This article consolidates and extends past work on derivative pricing adjustments, including XVA, by providing an encapsulating representation of the adjustment between any two derivative pricing functions, within an Ito SDE/parabolic PDE…
As markets have digitized, the number of tradable products has skyrocketed. Algorithmically constructed portfolios of these assets now dominate public and private markets, resulting in a combinatorial explosion of tradable assets. In this…
Cost-of-capital valuation is a well-established approach to the valuation of liabilities and is one of the cornerstones of current regulatory frameworks for the insurance industry. Standard cost-of-capital considerations typically rely on…
In this paper, we develop a theoretical framework for bounding the CVaR of a random variable $X$ using another related random variable $Y$, under assumptions on their cumulative and density functions. Our results yield practical tools for…
We study a distributed Principal Component Analysis (PCA) framework where each worker targets a distinct eigenvector and refines its solution by updating from intermediate solutions provided by peers deemed as "superior". Drawing intuition…
This study examines the impact of different computing implementations of clearing mechanisms on multi-asset price dynamics within an artificial stock market framework. We show that sequential processing of order books introduces a…
This paper presents a new method to assess default risk based on applying the CEV process to the KMV model. We find that the volatility of the firm asset value may not be a constant, so we assume the firm's asset value dynamics are given by…
We investigate leave-one-out cross validation (CV) as a determinator of the weight of the penalty term in the least absolute shrinkage and selection operator (LASSO). First, on the basis of the message passing algorithm and a perturbative…
Canonical Correlation Analysis (CCA) is a statistical technique used to extract common information from multiple data sources or views. It has been used in various representation learning problems, such as dimensionality reduction, word…