Related papers: Robust XVA
In this paper, we consider the robust optimal reinsurance investment problem of the insurer under the $\alpha$-maxmin mean-variance criterion in the defaultable market. The financial market consists of risk-free bonds, a stock and a…
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.,}…
In this paper we revisit Burnett (2021) \& Burnett and Williams (2021)'s notion of hedging valuation adjustment (HVA), originally intended to deal with dynamic hedging frictions such as transaction costs, in the direction of model risk. The…
The credit crisis and the ongoing European sovereign debt crisis have highlighted the native form of credit risk, namely the counterparty risk. The related Credit Valuation Adjustment, (CVA), Debt Valuation Adjustment (DVA), Liquidity…
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
We develop a unified valuation theory that incorporates credit risk (defaults), collateralization and funding costs, by expanding the replication approach to a generality that has not yet been studied previously and reaching valuation when…
This paper proposes a portfolio construction framework designed to remain robust under estimation error, non-stationarity, and realistic trading constraints. The methodology combines dynamic asset eligibility, deterministic rebalancing, and…
We analyze the counterparty risk embedded in CDS contracts, in presence of a bilateral margin agreement. First, we investigate the pricing of collateralized counterparty risk and we derive the bilateral Credit Valuation Adjustment (CVA),…
The modeling of the probability of joint default or total number of defaults among the firms is one of the crucial problems to mitigate the credit risk since the default correlations significantly affect the portfolio loss distribution and…
We study the semilinear partial differential equation (PDE) associated with the non-linear BSDE characterizing buyer's and seller's XVA in a framework that allows for asymmetries in funding, repo and collateral rates, as well as for early…
In this paper, we present a novel computational framework for portfolio-wide risk management problems, where the presence of a potentially large number of risk factors makes traditional numerical techniques ineffective. The new method…
We consider the problem of computing the Value Adjustment of European contingent claims when default of either party is considered, possibly including also funding and collateralization requirements. As shown in Brigo et al. (\cite{BLPS},…
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…
In the frictionless discrete time financial market of Bouchard et al.(2015) we consider a trader who, due to regulatory requirements or internal risk management reasons, is required to hedge a claim $\xi$ in a risk-conservative way relative…
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…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…
We study mean-risk optimal portfolio problems where risk is measured by Recovery Average Value at Risk, a prominent example in the class of recovery risk measures. We establish existence results in the situation where the joint distribution…
A key driver of Credit Value Adjustment (CVA) is the possible dependency between exposure and counterparty credit risk, known as Wrong-Way Risk (WWR). At this time, addressing WWR in a both sound and tractable way remains challenging:…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
We show how the cost of funding the collateral in a particular set up can be equal to the Bilateral Valuation Adjustment with the "funded" probability of default, leading to the definition of a Funded Bilateral Valuation Adjustment (FBVA).…