Related papers: XVA Analysis From the Balance Sheet
Credit Valuation Adjustment captures the difference in the value of derivative contracts when the counterparty default probability is taken into account. However, in the context of a network of contracts, the default probability of a direct…
Financial portfolios are often optimized for maximum profit while subject to a constraint formulated in terms of the Conditional Value-at-Risk (CVaR). This amounts to solving a linear problem. However, in its original formulation this…
Quantitative finance is the use of mathematical models to analyse financial markets and securities. Typically requiring significant amounts of computation, an important question is the role that novel architectures can play in accelerating…
We obtain an explicit formula for the bilateral counterparty valuation adjustment of a credit default swaps portfolio referencing an asymptotically large number of entities. We perform the analysis under a doubly stochastic intensity…
We consider the computation by simulation and neural net regression of conditional expectations, or more general elicitable statistics, of functionals of processes $(X, Y )$. Here an exogenous component $Y$ (Markov by itself) is…
This paper presents a convenient framework for modeling default process and pricing derivative securities involving credit risk. The framework provides an integrated view of credit valuation adjustment by linking distance-to-default,…
Credit value adjustment (CVA) is the charge applied by financial institutions to the counterparty to cover the risk of losses on a counterpart default event. In this paper we estimate such a premium under the Bates stochastic model (Bates…
When self-adaptive systems encounter changes within their surrounding environments, they enact tactics to perform necessary adaptations. For example, a self-adaptive cloud-based system may have a tactic that initiates additional computing…
We consider a liquidation problem in which a risk-averse trader tries to liquidate a fixed quantity of an asset in the presence of market impact and random price fluctuations. The trader encounters a trade-off between the transaction costs…
A critical problem in the financial world deals with the management of risk, from regulatory risk to portfolio risk. Many such problems involve the analysis of securities modelled by complex dynamics that cannot be captured analytically,…
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…
In this note we sketch an initial tentative approach to funding costs analysis and management for contracts with bilateral counterparty risk in a simplified setting. We depart from the existing literature by analyzing the issue of funding…
Transaction costs play a critical role in asset allocation and consumption strategies in portfolio management. We apply the methods of dynamic programming and singular perturbation expansion to derive the closed-form leading solutions to…
This paper studies a portfolio optimization problem in a discrete-time Markovian model of a financial market, in which asset price dynamics depend on an external process of economic factors. There are transaction costs with a structure that…
We present a unified framework for computing CVA sensitivities, hedging the CVA, and assessing CVA risk, using probabilistic machine learning meant as refined regression tools on simulated data, validatable by low-cost companion Monte Carlo…
We study the impact of exchange rate volatility on cost efficiency and market structure in a cross-section of banks that have non-trivial exposures to foreign currency (FX) operations. We use unique data on quarterly revaluations of FX…
We study the problem of finding the worst-case joint distribution of a set of risk factors given prescribed multivariate marginals and a nonlinear loss function. We show that when the risk measure is CVaR, and the distributions are…
In recent years, a CRA (Credit Risk Analysis) quantum algorithm with a quadratic speedup over classical analogous methods has been introduced. We propose a new variant of this quantum algorithm with the intent of overcoming some of the most…
In this paper we present a rigorously motivated pricing equation for derivatives, including general cash collateralization schemes, which is consistent with quoted market bond prices. Traditionally, there have been differences in how…
A derivative is a financial security whose value is a function of underlying traded assets and market outcomes. Pricing a financial derivative involves setting up a market model, finding a martingale (``fair game") probability measure for…