Related papers: Discounting with Imperfect Collateral
This paper analyzes the pricing of collateralized derivatives, i.e. contracts where counterparties are not only subject to financial derivatives cash flows but also to collateral cash flows arising from a collateral agreement. We do this…
The problem of variable-rate lossless data compression is considered, for codes with and without prefix constraints. Sharp bounds are derived for the best achievable compression rate of memoryless sources, when the excess-rate probability…
I develop a tractable adverse-selection model comparing secured bank loans and bonds when both pledge collateral but differ in effective liquidation efficiency. A small wedge in recovery rates generates coexistence, a sharp bank-bond…
Funding is a cost to trading desks that they see as an input. Current FVA-related literature reflects this by also taking funding costs as an input, usually constant, and always risk-neutral. However, this funding curve is the output from a…
Total value adjustment (XVA) is the change in value to be added to the price of a derivative to account for the bilateral default risk and the funding costs. In this paper, we compute such a premium for American basket derivatives whose…
In complete markets, there are risky assets and a riskless asset. It is assumed that the riskless asset and the risky asset are traded continuously in time and that the market is frictionless. In this paper, we propose a new method for…
Financial networks raise a significant computational challenge in identifying insolvent firms and evaluating their exposure to systemic risk. This task, known as the clearing problem, is computationally tractable when dealing with simple…
SOFR derivatives market remains illiquid and incomplete so it is not amenable to classical risk-neutral term structure models which are based on the assumption of perfect liquidity and completeness. This paper develops a statistical SOFR…
As new Model-X knockoff construction techniques are developed, primarily concerned with determining the correct conditional distribution from which to sample, we focus less on deriving the correct multivariate distribution and instead ask…
We study a linear-quadratic, optimal control problem on a discrete, finite time horizon with distributional ambiguity, in which the cost is assessed via Conditional Value-at-Risk (CVaR). We take steps toward deriving a scalable dynamic…
There is a persistent lack of funding, especially for SMEs, that cyclically worsens. The factoring and invoice discounting market appears to address delays in paying commercial invoices: sellers bring still-to-be-paid invoices to financial…
We introduce the notion of a risk-limiting financial auditing (RLFA): given $N$ transactions, the goal is to estimate the total misstated monetary fraction~($m^*$) to a given accuracy $\epsilon$, with confidence $1-\delta$. We do this by…
One of the crucial problems in mathematical finance is to mitigate the risk of a financial position by setting up hedging positions of eligible financial securities. This leads to focusing on set-valued maps associating to any financial…
Credit Valuation Adjustment is a balance sheet item which is nowadays subject to active risk management by specialized traders. However, one of the most important risk factors, which is the vector of default intensities of the counterparty,…
Motivated by the equations of cross valuation adjustments (XVAs) in the realistic case where capital is deemed fungible as a source of funding for variation margin, we introduce a simulation/regression scheme for a class of anticipated…
We show that, for the purpose of pricing Swaptions, the Swap rate and the corresponding Forward rates can be considered lognormal under a single martingale measure. Swaptions can then be priced as options on a basket of lognormal assets and…
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…
In this paper, we propose a neural network-based method for CVA computations of a portfolio of derivatives. In particular, we focus on portfolios consisting of a combination of derivatives, with and without true optionality, \textit{e.g.,}…
We study permissionless spot--perpetual basis trading in decentralized finance as a collateral control problem. The strategy holds spot inventory, hedges directional exposure with a short perpetual, and allocates capital between spot…
Split conformal prediction provides distribution-free prediction intervals with finite-sample marginal coverage, but produces constant-width intervals that overcover in low-variance regions and undercover in high-variance regions. Existing…