Related papers: Accelerated Computations of Sensitivities for xVA
We consider the problem of estimating the probability of a large loss from a financial portfolio, where the future loss is expressed as a conditional expectation. Since the conditional expectation is intractable in most cases, one may…
Managing and hedging the risks associated with Variable Annuity (VA) products require intraday valuation of key risk metrics for these products. The complex structure of VA products and computational complexity of their accurate evaluation…
A new challenge to quantitative finance after the recent financial crisis is the study of credit valuation adjustment (CVA), which requires modeling of the future values of a portfolio. In this paper, following recent work in [Weinan…
Nested simulation is a natural approach to tackle nested estimation problems in operations research and financial engineering. The outer-level simulation generates outer scenarios and the inner-level simulations are run in each outer…
In this paper we study the approximate learnability of valuations commonly used throughout economics and game theory for the quantitative encoding of agent preferences. We provide upper and lower bounds regarding the learnability of…
In this article we construct a theoretical and computational process for assessing Input Probability Sensitivity Analysis (IPSA) using a Graphics Processing Unit (GPU) enabled technique called Vectorized Uncertainty Propagation (VUP). VUP…
In this paper we extend the existing literature on xVA along three directions. First, we enhance current BSDE-based xVA frameworks to include initial margin in presence of defaults. Next, we solve the consistency problem that arises when…
We consider an investor who seeks to maximize her expected utility derived from her terminal wealth relative to the maximum performance achieved over a fixed time horizon, and under a portfolio drawdown constraint, in a market with local…
Simulations are becoming ever more common as a tool for designing complex products. Sensitivity analysis techniques can be applied to these simulations to gain insight, or to reduce the complexity of the problem at hand. However, these…
Motivated by the equations of cross valuation adjustments (XVAs) in the realistic case where capital is deemed fungible as a source of funding for variation margin, we introduce a simulation/regression scheme for a class of anticipated…
We introduce an arbitrage-free framework for robust valuation adjustments. An investor trades a credit default swap portfolio with a risky counterparty, and hedges credit risk by taking a position in defaultable bonds. The investor does not…
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:…
The implied volatility is a crucial element of any financial toolbox, since it is used for quoting and the hedging of options as well as for model calibration. In contrast to the Black-Scholes formula its inverse, the implied volatility, is…
Shapley effects are attracting increasing attention as sensitivity measures. When the value function is the conditional variance, they account for the individual and higher order effects of a model input. They are also well defined under…
Recent years have seen an increased level of interest in pricing equity options under a stochastic volatility model such as the Heston model. Often, simulating a Heston model is difficult, as a standard finite difference scheme may lead to…
Engineering risk is concerned with the likelihood of failure and the scenarios when it occurs. The sensitivity of failure probability to change in system parameters is relevant to risk-informed decision making. Computing sensitivity is at…
High precision analytical approximation is proposed for variance-covariance based risk allocation in a portfolio of risky assets. A general case of a single-period multi-factor Merton-type model with stochastic recovery is considered. The…
Portfolio Selection is an important real-world financial task and has attracted extensive attention in artificial intelligence communities. This task, however, has two main difficulties: (i) the non-stationary price series and complex asset…
For rare events described in terms of Markov processes, truly unbiased estimation of the rare event probability generally requires the avoidance of numerical approximations of the Markov process. Recent work in the exact and…
We present an approach to derivative exposure management based on subjective and implied probabilities. We suggest to maximize the valuation difference subject to risk constraints and propose a class of risk measures derived from the…