Related papers: Corrected XVA Modelling Framework and Formulae for…
We consider the path-dependent volatility (PDV) model of Guyon and Lekeufack (2023), where the instantaneous volatility is a linear combination of a weighted sum of past returns and the square root of a weighted sum of past squared returns.…
We relax a number of assumptions in Alexeev and Tapon (2012) in order to account for non-normally distributed, skewed, multi-regime, and leptokurtic asset return distributions. We calibrate a Markov-modulated Levy process model to equity…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
This paper provides a mathematical framework based on the principle of invariance to classify institutions in two paradigms according to the way in which credit, debit and funding adjustments are calculated: accounting and management…
A new realized conditional autoregressive Value-at-Risk (VaR) framework is proposed, through incorporating a measurement equation into the original quantile regression model. The framework is further extended by employing various Expected…
We develop a novel multivariate semi-parametric framework for joint portfolio Value-at-Risk (VaR) and Expected Shortfall (ES) forecasting. Unlike existing univariate semi-parametric approaches, the proposed framework explicitly models the…
CVaR (Conditional Value at Risk) is a risk metric widely used in finance. However, dynamically optimizing CVaR is difficult since it is not a standard Markov decision process (MDP) and the principle of dynamic programming fails. In this…
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.,}…
The variance gamma model is a widely popular model for option pricing in both academia and industry. In this paper, we provide a new perspective for pricing European style options for the variance gamma model by deriving closed-form…
We study cash-flow forecasting for derivatives used in liquidity management and clarify its relation to risk-neutral valuation and replication. While it is well known that expectations under different measures (e.g., $\mathbb{P}$ vs.…
We consider the framework proposed by Burgard and Kjaer (2011) that derives the PDE which governs the price of an option including bilateral counterparty risk and funding. We extend this work by relaxing the assumption of absence of…
We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model was already described in the literature. We present a new approach to the problem, based on partial…
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…
Multivariate Analysis (MVA) comprises a family of well-known methods for feature extraction which exploit correlations among input variables representing the data. One important property that is enjoyed by most such methods is uncorrelation…
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…
We show how to reduce the problem of computing VaR and CVaR with Student T return distributions to evaluation of analytical functions of the moments. This allows an analysis of the risk properties of systems to be carefully attributed…
We study a first-order primal-dual subgradient method to optimize risk-constrained risk-penalized optimization problems, where risk is modeled via the popular conditional value at risk (CVaR) measure. The algorithm processes independent and…
We show how to price and replicate a variety of barrier-style claims written on the $\log$ price $X$ and quadratic variation $\langle X \rangle$ of a risky asset. Our framework assumes no arbitrage, frictionless markets and zero interest…
We consider the pricing of variable annuities (VAs) with general fee structures under popular stochastic volatility models such as Heston, Hull-White, Scott, $\alpha$-Hypergeometric, $3/2$, and $4/2$ models. In particular, we analyze the…
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…