Related papers: XVA Analysis From the Balance Sheet
Non-equilibrium phenomena occur not only in physical world, but also in finance. In this work, stochastic relaxational dynamics (together with path integrals) is applied to option pricing theory. A recently proposed model (by Ilinski et…
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…
We discuss the use of saddlepoint methods in the analysis of portfolios, with particular reference to credit portfolios. The objective is to proceed from a model of the loss distribution, given through probabilities, correlations and the…
Machine learning plays an essential role in preventing financial losses in the banking industry. Perhaps the most pertinent prediction task that can result in billions of dollars in losses each year is the assessment of credit risk (i.e.,…
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 report a study of a stylized banking cascade model investigating systemic risk caused by counter party failure using liabilities and assets to define banks' balance sheet. In our stylized system, banks can be in two states: normally…
Risk budgeting is a portfolio strategy where each asset contributes a prespecified amount to the aggregate risk of the portfolio. In this work, we propose an efficient numerical framework that uses only simulations of returns for estimating…
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…
This study investigates the relationship between bank efficiency and stock market valuation using an unbalanced panel dataset of 42 listed banks in China from 2006 to 2023. We employ a non-radial and non-oriented slack based…
We employ perturbation analysis technique to study multi-asset portfolio optimisation with transaction cost. We allow for correlations in risky assets and obtain optimal trading methods for general utility functions. Our analytical results…
The paper studies derivative asset analysis in structural credit risk models where the asset value of the firm is not fully observable. It is shown that in order to compute the price dynamics of traded securities one needs to solve a…
Principal component analysis (PCA) is a useful tool when trying to construct factor models from historical asset returns. For the implied volatilities of U.S. equities there is a PCA-based model with a principal eigenportfolio whose return…
This paper develops a mathematical framework for the analysis of continuous-time trading strategies which, in contrast to the classical setting of continuous-time mathematical finance, does not rely on stochastic integrals or other…
In financial terms, an implied volatility surface can be described by its term structure, its skewness and its overall volatility level. We use a PCA variational auto-encoder model to perfectly represent these descriptors into a latent…
The purpose of this article is to introduce a new L\'evy process, termed Variance Gamma++ process, to model the dynamic of assets in illiquid markets. Such a process has the mathematical tractability of the Variance Gamma process and is…
This article's aim is to provide the solution to the equity premium puzzle without using calibrated values. Calibrated values of subjective time discount factor were used in my prior derived models because 4 variables were determined from 3…
Travel time derivatives are financial instruments that derive their value from road travel times, serving as an underlying asset that cannot be directly traded. Within the transportation domain, these derivatives are proposed as a more…
We describe a high performance parallel implementation of a derivative pricing model, within which we introduce a new parallel method for the calibration of the industry standard SABR (stochastic-\alpha \beta \rho) stochastic volatility…
In this paper we study nonlinear partial differential equations (PDEs) that are used to model different value adjustments denoted generally as xVA. These adjustments are nowadays commonly added to the risk-free financial derivative values…
In March 2020, the world was thrown into financial distress. This manifested itself in increased uncertainty in the financial markets. Many interest rates collapsed, and funding spreads surged significantly, which increased due to the…