Related papers: XVA at the Exercise Boundary
Rewards and punishments in different forms are pervasive and present in a wide variety of decision-making scenarios. By observing the outcome of a sufficient number of repeated trials, one would gradually learn the value and usefulness of a…
Is an option to early terminate a swap at its market value worth zero? At first sight it is, but in presence of counterparty risk it depends on the criteria used to determine such market value. In case of a single uncollateralised swap…
Short review of experimental and theoretical researches influence of inner boundaries at properties of composite materials. Reviewing articles that are made at the last, approximately, thirty years, and which demonstrate role of inner…
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…
The use of CVA to cover credit risk is widely spread, but has its limitations. Namely, dealers face the problem of the illiquidity of instruments used for hedging it, hence forced to warehouse credit risk. As a result, dealers tend to offer…
The aim of this article is to provide a systematic analysis of the conditions such that Fourier transform valuation formulas are valid in a general framework; i.e. when the option has an arbitrary payoff function and depends on the path of…
Value at Risk (VaR) is a quantitative measure used to evaluate the risk linked to the potential loss of investment or capital. Estimation of the VaR entails the quantification of prospective losses in a portfolio of investments, using a…
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…
The influence of Commodity Trading Advisors (CTA) on the price process is explored with the help of a simple model. CTA managers are taken to be Kelly optimisers, which invest a fixed proportion of their assets in the risky asset and the…
This work studies the valuation of currency options in markets suffering from a financial crisis. We consider a European option where the underlying asset is a foreign currency. We assume that the value of the underlying asset is a…
Option contracts are a type of financial derivative that allow investors to hedge risk and speculate on the variation of an asset's future market price. In short, an option has a particular payout that is based on the market price for an…
The measures of roughness of the volatility in the litterature are based on the realized volatility of high frequency data. Some authors show that this leads to a biased estimate, and does not necessarily indicate roughness of the…
Extended resolution shows that auxiliary variables are very powerful in theory. However, attempts to exploit this potential in practice have had limited success. One reasonably effective method in this regard is bounded variable addition…
The paper studies sub and super-replication price bounds for contingent claims defined on general trajectory based market models. No prior probabilistic or topological assumptions are placed on the trajectory space, trading is assumed to…
Bias significantly undermines both the accuracy and trustworthiness of machine learning models. To date, one of the strongest biases observed in image classification models is texture bias-where models overly rely on texture information…
The purpose of this paper is to construct the early exercise boundary for a class of nonlinear Black--Scholes equations with a nonlinear volatility depending on the option price. We review a method how to transform the problem into a…
Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of…
Time-to-event analyses are often plagued by both -- possibly unmeasured -- confounding and competing risks. To deal with the former, the use of instrumental variables for effect estimation is rapidly gaining ground. We show how to make use…
This paper investigates decision-making in A/B experiments for online platforms and marketplaces. In such settings, due to constraints on inventory, A/B experiments typically lead to biased estimators because of *interference* between…
The first half of the paper is devoted to description and implementation of statistical tests arguing for the presence of a Brownian component in the inventories and wealth processes of individual traders. We use intra-day data from the…