Related papers: FX Modelling in Collateralized Markets: foreign me…

We present a detailed analysis of interest rate derivatives valuation under credit risk and collateral modeling. We show how the credit and collateral extended valuation framework in Pallavicini et al (2011), and the related collateralized…

When trading American and Asian options in the FX derivatives market, banks must calculate prices using a complex mathematical model. It is often observed that different models produce varying prices for the same exotic option, which…

In this note we discuss - in what is intended to be a pedagogical fashion - FX option pricing in target zones with attainable boundaries. The boundaries must be reflecting. The no-arbitrage requirement implies that the differential (foreign…

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…

This article provides a list of counterexamples, where some of the popular fx option interpolations break down. Interpolation of FX option prices (or equivalently volatilities), is key to risk-manage not only vanilla FX option books, but…

We develop robust pricing and hedging of a weighted variance swap when market prices for a finite number of co--maturing put options are given. We assume the given prices do not admit arbitrage and deduce no-arbitrage bounds on the weighted…

After a market downturn, especially in an uncertain economic environment such as the current state, there can be a relatively long period with a sideways market, where indexes, stocks, etc., move in channels with support and resistance…

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…

We show how inter-asset dependence information derived from market prices of options can lead to improved model-free price bounds for multi-asset derivatives. Depending on the type of the traded option, we either extract correlation…

We present a high-level framework that explains why, in practice, different pricing models calibrated to the same vanilla surface tend to produce similar valuations for exotic derivatives. Our approach acts as an overlay on the Monte Carlo…

We study the local volatility function in the Foreign Exchange market where both domestic and foreign interest rates are stochastic. This model is suitable to price long-dated FX derivatives. We derive the local volatility function and…

This paper proposes a numerical method for pricing foreign exchange (FX) options in a model which deals with stochastic interest rates and stochastic volatility of the FX rate. The model considers four stochastic drivers, each represented…

The general problem of asset pricing when the discount rate differs from the rate at which an asset's cash flows accrue is considered. A pricing kernel framework is used to model an economy that is segmented into distinct markets, each…

Pricing composite and quanto contracts requires a joint model of both the underlying asset and the exchange rate. In this contribution, we explore the potential of local-correlation models to address the challenges of calibrating synthetic…

This paper generalizes the framework for arbitrage-free valuation of bilateral counterparty risk to the case where collateral is included, with possible re-hypotecation. We analyze how the payout of claims is modified when collateral…

Foreign exchange rates movements exhibit significant cross-correlations even on very short time-scales. The effect of these statistical relationships become evident during extreme market events, such as flash crashes.In this scenario, an…

The objective of this paper is to provide a comprehensive study no-arbitrage pricing of financial derivatives in the presence of funding costs, the counterparty credit risk and market frictions affecting the trading mechanism, such as…

We consider derivatives written on multiple underlyings in a one-period financial market, and we are interested in the computation of model-free upper and lower bounds for their arbitrage-free prices. We work in a completely realistic…

The importance of collateralization through the change of funding cost is now well recognized among practitioners. In this article, we have extended the previous studies of collateralized derivative pricing to more generic situation, that…

In this paper we introduce a new approach to model-free path-dependent option pricing. We first introduce a general duality result for linear optimisation problems over signed measures introduced in [3] and show how the the problem of…