Related papers: Corrected XVA Modelling Framework and Formulae for…
The strengthening of capital requirements has induced banks and traders to consider charging a so called capital valuation adjustment (KVA) to the clients in OTC transactions. This roughly corresponds to charge the clients ex-ante the…
Financial institutions now face the important challenge of having to do multiple portfolio revaluations for their risk computation. The list is almost endless: from XVAs to FRTB, stress testing programs, etc. These computations require from…
Credit value adjustment (CVA) is the charge applied by financial institutions to the counterparty to cover the risk of losses on a counterpart default event. In this paper we estimate such a premium under the Bates stochastic model (Bates…
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…
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…
Various valuation adjustments, or XVAs, can be written in terms of non-linear PIDEs equivalent to FBSDEs. In this paper we develop a Fourier-based method for solving FBSDEs in order to efficiently and accurately price Bermudan derivatives,…
Joint calibration to SPX and VIX market data is a delicate task that requires sophisticated modeling and incurs significant computational costs. The latter is especially true when pricing of volatility derivatives hinges on nested Monte…
We tackle the problem of estimating risk measures of the infinite-horizon discounted cost within a Markov cost process. The risk measures we study include variance, Value-at-Risk (VaR), and Conditional Value-at-Risk (CVaR). First, we show…
We propose a method to assess the intrinsic risk carried by a financial position $X$ when the agent faces uncertainty about the pricing rule assigning its present value. Our approach is inspired by a new interpretation of the quasiconvex…
We present an approach to market-consistent multi-period valuation of insurance liability cash flows based on a two-stage valuation procedure. First, a portfolio of traded financial instrument aimed at replicating the liability cash flow is…
Reference prices have long been studied in applied economics and business research. One of the classic formulations of the reference price is in terms of an iterative function of past prices. There are a number of limitations of such a…
This paper presents a new method to assess default risk based on applying the CEV process to the KMV model. We find that the volatility of the firm asset value may not be a constant, so we assume the firm's asset value dynamics are given by…
This paper concerns sequential computation of risk measures for financial data and asks how, given a risk measurement procedure, we can tell whether the answers it produces are `correct'. We draw the distinction between `external' and…
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,…
We introduce two quantum algorithms to compute the Value at Risk (VaR) and Conditional Value at Risk (CVaR) of financial derivatives using quantum computers: the first by applying existing ideas from quantum risk analysis to derivative…
Conditional value-at-risk (CVaR) is a prominent risk measure in financial engineering, energy systems, and supply chain management. In these domains, Markov decision processes (MDPs) with a long-run CVaR criterion effectively mitigate cost…
We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model…
The pricing of derivatives tied to baskets of assets demands a sophisticated framework that aligns with the available market information to capture the intricate non-linear dependency structure among the assets. We describe the dynamics of…
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration…
In this chapter, we consider volatility swap, variance swap and VIX future pricing under different stochastic volatility models and jump diffusion models which are commonly used in financial market. We use convexity correction approximation…