Related papers: Option-Based Pricing of Wrong Way Risk for CVA

We present the conditional value-at-risk (CVaR) in the context of Markov chains and Markov decision processes with reachability and mean-payoff objectives. CVaR quantifies risk by means of the expectation of the worst p-quantile. As such it…

The ability to make optimal decisions under uncertainty remains important across a variety of disciplines from portfolio management to power engineering. This generally implies applying some safety margins on uncertain parameters that may…

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…

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…

In safety-critical decision-making, the environment may evolve over time, and the learner adjusts its risk level accordingly. This work investigates risk-averse online optimization in dynamic environments with varying risk levels, employing…

The introduction of CCPs in most derivative transactions will dramatically change the landscape of derivatives pricing, hedging and risk management, and, according to the TABB group, will lead to an overall liquidity impact about 2 USD…

Bank behaviour is important for pricing XVA because it links different counterparties and thus breaks the usual XVA pricing assumption of counterparty independence. Consider a typical case of a bank hedging a client trade via a CCP. On…

This thesis presents the Conditional Value-at-Risk concept and combines an analysis that covers its application as a risk measure and as a vector norm. For both areas of application the theory is revised in detail and examples are given to…

Credit Valuation Adjustment captures the difference in the value of derivative contracts when the counterparty default probability is taken into account. However, in the context of a network of contracts, the default probability of a direct…

A novel optimisation framework through quadratic nonlinear projection is introduced for credit portfolio when the portfolio risk is measured by Conditional Value-at-Risk (CVaR). The whole optimisation procedure to search toward the optimal…

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…

In several real-world applications involving decision making under uncertainty, the traditional expected value objective may not be suitable, as it may be necessary to control losses in the case of a rare but extreme event. Conditional…

Conditional Value-at-Risk (CVaR) is a widely used risk metric in applications such as finance. We derive concentration bounds for CVaR estimates, considering separately the cases of light-tailed and heavy-tailed distributions. In the…

We consider an online stochastic game with risk-averse agents whose goal is to learn optimal decisions that minimize the risk of incurring significantly high costs. Specifically, we use the Conditional Value at Risk (CVaR) as a risk measure…

This paper proposes a risk-aware control approach to enforce safety for discrete-time nonlinear systems subject to stochastic uncertainties. We derive some useful results on the worst-case Conditional Value-at-Risk (CVaR) and define a…

We study dynamic hedging of counterparty risk for a portfolio of credit derivatives. Our empirically driven credit model consists of interacting default intensities which ramp up and then decay after the occurrence of credit events. Using…

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…

In this note we sketch an initial tentative approach to funding costs analysis and management for contracts with bilateral counterparty risk in a simplified setting. We depart from the existing literature by analyzing the issue of funding…

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…

Considering non-stationary environments in online optimization enables decision-maker to effectively adapt to changes and improve its performance over time. In such cases, it is favorable to adopt a strategy that minimizes the negative…