Related papers: MVA Transfer Pricing
This paper investigates calculations of robust XVA, in particular, credit valuation adjustment (CVA) and funding valuation adjustment (FVA) for over-the-counter derivatives under distributional uncertainty using Wasserstein distance as the…
A common approach to valuing exotic options involves choosing a model and then determining its parameters to fit the volatility surface as closely as possible. We refer to this as the model calibration approach (MCA). A disadvantage of MCA…
In decentralized finance, any individual can pool their assets into an automated market maker (AMM) -- herein we focus on the constant product market maker (CPMM) -- in exchange for a claim on a fraction of future pool assets and fees…
We show how the cost of funding the collateral in a particular set up can be equal to the Bilateral Valuation Adjustment with the "funded" probability of default, leading to the definition of a Funded Bilateral Valuation Adjustment (FBVA).…
This paper introduces an information-based model for the pricing of storable commodities such as crude oil and natural gas. The model uses the concept of market information about future supply and demand as a basis for valuation. Physical…
Wrong-Way Risk (WWR) is an important component in Funding Valuation Adjustment (FVA) modelling. Yet, the standard assumption is independence between market risks and the counterparty defaults and funding costs. This typical industrial…
Cash collateral is perfect in that it provides simultaneous counterparty credit risk protection and derivatives funding. Securities are imperfect collateral, because of collateral segregation or differences in CSA haircuts and repo…
This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…
We discuss the binary nature of funding impact in derivative valuation. Under some conditions, funding is either a cost or a benefit, i.e., one of the lending/borrowing rates does not play a role in pricing derivatives. When derivatives are…
We introduce an arbitrage-free framework for robust valuation adjustments. An investor trades a credit default swap portfolio with a risky counterparty, and hedges credit risk by taking a position in defaultable bonds. The investor does not…
An automated market maker (AMM) provides a method for creating a decentralized exchange on the blockchain. For this purpose, individual investors lend liquidity to the AMM pool in exchange for a stream of fees earned from its operations as…
This paper mathematically models a constant-function automated market maker (CFAMM) position as a portfolio of exotic options, known as perpetual American continuous-installment (CI) options. This model replicates an AMM position's delta at…
The binomial tree method and the Monte Carlo (MC) method are popular methods for solving option pricing problems. However in both methods there is a trade-off between accuracy and speed of computation, both of which are important in…
This paper considers the mean variance portfolio management problem. We examine portfolios which contain both primary and derivative securities. The challenge in this context is due to portfolio's nonlinearities. The delta-gamma…
We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model was already described in the literature. We present a new approach to the problem, based on partial…
This paper deals with a high-order accurate implicit finite-difference approach to the pricing of barrier options. In this way various types of barrier options are priced, including barrier options paying rebates, and options on…
In this paper, we consider the problem of pricing discretely-sampled variance swaps based on a hybrid model of stochastic volatility and stochastic interest rate with regime-switching. Our modelling framework extends the Heston stochastic…
It is well documented that a model for the underlying asset price process that seeks to capture the behaviour of the market prices of vanilla options needs to exhibit both diffusion and jump features. In this paper we assume that the asset…
The crisis that affected financial markets in the last years leaded market practitioners to revise well known basic concepts like the ones of discount factors and forward rates. A single yield curve is not sufficient any longer to describe…
We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations,…