Related papers: Corrected XVA Modelling Framework and Formulae for…
Estimating large covariance and precision matrices are fundamental in modern multivariate analysis. The problems arise from statistical analysis of large panel economics and finance data. The covariance matrix reveals marginal correlations…
Sustaining efficiency and stability by properly controlling the equity to asset ratio is one of the most important and difficult challenges in bank management. Due to unexpected and abrupt decline of asset values, a bank must closely…
We apply vector quantisation within mixed one- and two-factor Bergomi models to implement a fast and efficient approach for option pricing in these models. This allows us to calibrate such models to market data of VIX futures and options.…
Cash collateral is perfect in that it provides simultaneous counterparty credit risk protection and derivatives funding. Securities are imperfect collateral, because of collateral segregation or differences in CSA haircuts and repo…
Covariate imbalance between treatment groups makes it difficult to compare cumulative incidence curves in competing risk analyses. In this paper we discuss different methods to estimate adjusted cumulative incidence curves including inverse…
In this paper we study partial differential equations (PDEs) that can be used to model value adjustments. Different value adjustments denoted generally as xVA are nowadays added to the risk-free financial derivative values and the PDE…
We propose a unified framework that employs variational inference (VI) with (conditional) normalizing flows (NFs) to train both between-model and within-model proposals for reversible jump Markov chain Monte Carlo, enabling efficient…
The purpose of these notes is to provide a systematic quantitative framework - in what is intended to be a "pedagogical" fashion - for discussing mean-reversion and optimization. We start with pair trading and add complexity by following…
Value at Risk (VaR) and Conditional Value at Risk (CVaR) have become the most popular measures of market risk in Financial and Insurance fields. However, the estimation of both risk measures is challenging, because it requires the knowledge…
Daily Value-at-Risk (VaR) for option books requires more than an accurate quantile forecast. It first requires a precise definition of the loss target. Before any model is evaluated, the protocol must fix the book construction rule, the…
This paper re-examines the problem of estimating risk premia in linear factor pricing models. Typically, the data used in the empirical literature are characterized by weakness of some pricing factors, strong cross-sectional dependence in…
This paper is a supplement to our recent paper ``Alternative models for FX, arbitrage opportunities and efficient pricing of double barrier options in L\'evy models". We introduce the class of regime-switching L\'evy models with memory,…
We study market-consistent valuation of liability cash flows motivated by current regulatory frameworks for the insurance industry. Building on the theory on multiple-prior optimal stopping we propose a valuation functional with sound…
In this paper, a new way to integrate volatility information for estimating value at risk (VaR) and conditional value at risk (CVaR) of a portfolio is suggested. The new method is developed from the perspective of Bayesian statistics and it…
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…
A three-dimensional extension of the structural default model with firms' values driven by correlated diffusion processes is presented. Green's function based semi-analytical methods for solving the forward calibration problem and backward…
The aim of this work is to evaluate the cheapest superreplication price of a general (possibly path-dependent) European contingent claim in a context where the model is uncertain. This setting is a generalization of the uncertain volatility…
The problem of data uncertainty has motivated the incorporation of robust optimization in various arenas, beyond the Markowitz portfolio optimization. This work presents the extension of the robust optimization framework for the…
The value-at-risk of a delta-gamma approximated derivatives portfolio can be computed by numerical integration of the characteristic function. However, while the choice of parameters in any numerical integration scheme is paramount, in…
A positive correlation between exposure and counterparty credit risk gives rise to the so-called Wrong-Way Risk (WWR). Even after a decade of the financial crisis, addressing WWR in both sound and tractable ways remains challenging.…