Related papers: Robust XVA
We consider a structural credit model for a large portfolio of credit risky assets where the correlation is due to a market factor. By considering the large portfolio limit of this system we show the existence of a density process for the…
Derivative pricing is about cash flow discounting at the riskfree rate. This teaching has lost its meaning post the financial crisis, due to the addition of extra value adjustments (XVA), which also made derivatives pricing and valuation a…
Robust optimization safeguards decisions against uncertainty by optimizing against worst-case scenarios, yet their effectiveness hinges on a prespecified robustness level that is often chosen ad hoc, leading to either insufficient…
In this paper, we present a method for constructing a (static) portfolio of co-maturing European options whose price sign is determined by the skewness level of the associated implied volatility. This property holds regardless of the…
We study super-replication of contingent claims in an illiquid market with model uncertainty. Illiquidity is captured by nonlinear transaction costs in discrete time and model uncertainty arises as our only assumption on stock price returns…
Shorting for hedging exposes to risk when the market dynamics is uncertain. Managing uncertainty and risk exposure is key in portfolio management practice. This paper develops a robust framework for dynamic minimum-variance hedging that…
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…
We study a continuous-time portfolio optimization problem under an explicit constraint on the Deviation Conditional Value-at-Risk (DCVaR), defined as the difference between the CVaR and the expected terminal wealth. While the mean-CVaR…
In the presence of ambiguity on the driving force of market randomness, we consider the dynamic portfolio choice without any predetermined investment horizon. The investment criteria is formulated as a robust forward performance process,…
A novel optimisation framework through quadratic nonlinear projection is introduced for credit portfolio when the portfolio risk is measured by Conditional Value-at-Risk (CVaR). The whole optimisation procedure to search toward the optimal…
The capitalization-weighted total relative variation $\sum_{i=1}^d \int_0^\cdot \mu_i (t) \mathrm{d} \langle \log \mu_i \rangle (t)$ in an equity market consisting of a fixed number $d$ of assets with capitalization weights $\mu_i (\cdot)$…
Although climate and nature related scenario analysis is increasingly important in finance, operational implementations remain limited for translating long horizon environmental scenarios into counterparty credit risk measures used in…
Wrong-Way Risk (WWR) is an important component in Funding Valuation Adjustment (FVA) modelling. Yet, the standard assumption is independence between market risks and the counterparty defaults and funding costs. This typical industrial…
We investigate the relation between the fair price for European-style vanilla options and the distribution of short-term returns on the underlying asset ignoring transaction and other costs. We compute the risk-neutral probability density…
We develop a methodology for index tracking and risk exposure control using financial derivatives. Under a continuous-time diffusion framework for price evolution, we present a pathwise approach to construct dynamic portfolios of…
We study continuous-time portfolio choice with nonlinear payoffs under smooth ambiguity and Bayesian learning. We develop a general framework for dynamic, non-concave asset allocation that accommodates nonlinear payoffs, broad utility…
Fault-tolerant replicated database systems consume less energy than the compute-intensive proof-of-work blockchain. Thus, they are promising technologies for the building blocks that assemble global financial infrastructure. To facilitate…
We develop a model for the dynamic evolution of default-free and defaultable interest rates in a LIBOR framework. Utilizing the class of affine processes, this model produces positive LIBOR rates and spreads, while the dynamics are…
In previous works Avellaneda et al. pioneered the pricing and hedging of index options - products highly sensitive to implied volatility and correlation assumptions - with large deviations methods, assuming local volatility dynamics for all…
Risk management is very important for individual investors or companies. There are many ways to measure the risk of investment. Prices of risky assets vary rapidly and randomly due to the complexity of finance market. Random interval is a…