Related papers: MVA Transfer Pricing
We explore the possibilities of importance sampling in the Monte Carlo pricing of a structured credit derivative referred to as Collateralized Debt Obligation (CDO). Modeling a CDO contract is challenging, since it depends on a pool of…
Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is…
The variance gamma model is a widely popular model for option pricing in both academia and industry. In this paper, we provide a new perspective for pricing European style options for the variance gamma model by deriving closed-form…
This work investigates the computational burden of pricing binary options in rare event regimes and introduces an adaptation of the adaptive multilevel splitting (AMS) method for financial derivatives. Standard Monte Carlo becomes…
We present a comprehensive quantum algorithm tailored for pricing autocallable options, offering a full implementation and experimental validation. Our experiments include simulations conducted on high-performance computing (HPC) hardware,…
This work studies the dynamic risk management of the risk-neutral value of the potential credit losses on a portfolio of derivatives. Sensitivities-based hedging of such liability is sub-optimal because of bid-ask costs, pricing models…
We introduce a fast and flexible Machine Learning (ML) framework for pricing derivative products whose valuation depends on volatility surfaces. By parameterizing volatility surfaces with the 5-parameter stochastic volatility inspired (SVI)…
This paper explores the capabilities of the Constant Elasticity of Variance model driven by a mixed-fractional Brownian motion (mfCEV) [Axel A. Araneda. The fractional and mixed-fractional CEV model. Journal of Computational and Applied…
We present an arbitrage free theoretical framework for modeling bid and ask prices of dividend paying securities in a discrete time setup using theory of dynamic acceptability indices. In the first part of the paper we develop the theory of…
The research presented in this article provides an alternative option pricing approach for a class of rough fractional stochastic volatility models. These models are increasingly popular between academics and practitioners due to their…
Prices of tradables can only be expressed relative to each other at any instant of time. This fundamental fact should therefore also hold for contigent claims, i.e. tradable instruments, whose prices depend on the prices of other tradables.…
We present an approach for pricing European call options in presence of proportional transaction costs, when the stock price follows a general exponential L\'{e}vy process. The model is a generalization of the celebrated work of Davis,…
In this paper we revisit Burnett (2021) \& Burnett and Williams (2021)'s notion of hedging valuation adjustment (HVA), originally intended to deal with dynamic hedging frictions such as transaction costs, in the direction of model risk. The…
We study valuation of swing options on commodity markets when the commodity prices are driven by multiple factors. The factors are modeled as diffusion processes driven by a multidimensional L\'evy process. We set up a valuation model in…
The dynamic hedging theory only makes sense in the setup of one given model, whereas the practice of dynamic hedging is just the opposite, with models fleeing after the data through daily recalibration. This is quite of a quantitative…
Recent studies have demonstrated the efficiency of Variational Autoencoders (VAE) to compress high-dimensional implied volatility surfaces into a low dimensional representation. Although this method can be effectively used for pricing…
The robust option pricing problem is to find upper and lower bounds on fair prices of financial claims using only the most minimal assumptions. It contrasts with the classical, model-based approach and gained prominence in the wake of the…
In financial markets, accurately measuring the risk of future fluctuations in asset prices is of paramount importance. Studies such as Carr and Madan have shown that the expected value of the quadratic variation of log prices can be…
We investigate the problem of pricing derivatives under a fractional stochastic volatility model. We obtain an approximate expression of the derivative price where the stochastic volatility can be composed of deterministic functions of time…
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…