Related papers: Arbitrage-Free XVA
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…
We study the complexity of deciding the existence of mixed equilibria for minimization games where players use valuations other than expectation to evaluate their costs. We consider risk-averse players seeking to minimize the sum…
In this paper, we define a new total order on R^N and use this order together with backward stochastic viability property(for short BSVP) to study the property of the generator of backward stochastic differential equation(for short BSDE)…
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…
In a discrete time setting, we study the central problem of giving a fair price to some financial product. For several decades, the no-arbitrage conditions and the martingale measures have played a major role for solving this problem. We…
We study the hedging and valuation of European and American claims on a non-traded asset $Y$, when a traded stock $S$ is available for hedging, with $S$ and $Y$ following correlated geometric Brownian motions. This is an incomplete market,…
We develop a unified valuation theory that incorporates credit risk (defaults), collateralization and funding costs, by expanding the replication approach to a generality that has not yet been studied previously and reaching valuation when…
In this paper, we consider the nonconvex minimization problem of the value-at-risk (VaR) that arises from financial risk analysis. By considering this problem as a special linear program with linear complementarity constraints (a bilevel…
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…
For an $\cF_T$-measurable payoff of a European type contingent claim, the recursive utility process/dynamic risk measure can be described by the adapted solution to a backward stochastic differential equation (BSDE). However, for an…
A new challenge to quantitative finance after the recent financial crisis is the study of credit valuation adjustment (CVA), which requires modeling of the future values of a portfolio. In this paper, following recent work in [Weinan…
We establish deterministic necessary and sufficient conditions for the no-arbitrage notions "no increasing profit" (NIP), "no strong arbitrage" (NSA) and "no unbounded profit with bounded risk" (NUPBR) in one-dimensional general diffusion…
In the theory of riskfree hedges in continuous time finance, one can start with the delta-hedge and derive the option pricing equation, or one can start with the replicating, self-financing hedging strategy and derive both the delta-hedge…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
Non-equilibrium phenomena occur not only in physical world, but also in finance. In this work, stochastic relaxational dynamics (together with path integrals) is applied to option pricing theory. A recently proposed model (by Ilinski et…
Valuation of Credit Valuation Adjustment (CVA) has become an important field as its calculation is required in Basel III, issued in 2010, in the wake of the credit crisis. Exposure, which is defined as the potential future loss of a default…
This paper presents a stochastic model for discrete-time trading in financial markets where trading costs are given by convex cost functions and portfolios are constrained by convex sets. The model does not assume the existence of a cash…
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 revisit the problem of pricing and hedging plain vanilla single-currency interest rate derivatives using multiple distinct yield curves for market coherent estimation of discount factors and forward rates with different underlying rate…
In high-stakes machine learning applications, it is crucial to not only perform well on average, but also when restricted to difficult examples. To address this, we consider the problem of training models in a risk-averse manner. We propose…