Related papers: Mathematical models and numerical methods for a ca…
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…
This paper presents methodological improvements to variational quantum algorithms (VQAs) for solving multicriteria optimization problems. We introduce two key contributions. First, we reformulate the parameter optimization task of VQAs as a…
Predicting future values at risk (fVaR) is an important problem in finance. They arise in the modelling of future initial margin requirements for counterparty credit risk and future market risk VaR. One is also interested in derived…
In a stochastic volatility framework, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This allows a pricing tool for European-style claims…
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…
Over the past decades, more and more methods gain a giant development due to the development of technology. Evolutionary Algorithms are widely used as a heuristic method. However, the budget of computation increases exponentially when the…
The dynamic hedging theory only makes sense in the setup of one given model, whereas the practice of dynamic hedging is just the opposite, with models fleeing after the data through daily recalibration. This is quite of a quantitative…
In this paper we describe how to include funding and margining costs into a risk-neutral pricing framework for counterparty credit risk. We consider realistic settings and we include in our models the common market practices suggested by…
Singular Value Decomposition (SVD) and its close relative, Principal Component Analysis (PCA), are well-known linear matrix decomposition techniques that are widely used in applications such as dimension reduction and clustering. However,…
Credit Value Adjustment (CVA) is the difference between the value of the default-free and credit-risky derivative portfolio, which can be regarded as the cost of the credit hedge. Default probabilities are therefore needed, as input…
The importance of collateralization through the change of funding cost is now well recognized among practitioners. In this article, we have extended the previous studies of collateralized derivative pricing to more generic situation, that…
We depart from the usual methods for pricing contracts with the counterparty credit risk found in most of the existing literature. In effect, typically, these models do not account for either systemic effects or at-first-default contagion…
Value-at-risk (VaR) has been playing the role of a standard risk measure since its introduction. In practice, the delta-normal approach is usually adopted to approximate the VaR of portfolios with option positions. Its effectiveness,…
This paper develops an XVA (costs) analysis of centrally cleared trading, parallel to the one that has been developed in the last years for bilateral transactions. We introduce a dynamic framework that incorporates the sequence of…
We introduce AVA, an automatic evaluation approach for Question Answering, which given a set of questions associated with Gold Standard answers, can estimate system Accuracy. AVA uses Transformer-based language models to encode question,…
In this article, we propose a new numerical approach to high-dimensional partial differential equations (PDEs) arising in the valuation of exotic derivative securities. The proposed method is extended from Reisinger and Wittum (2007) and…
In this article, we show how the scaling symmetry of the SABR model can be utilized to efficiently price European options. For special kinds of payoffs, the complexity of the problem is reduced by one dimension. For more generic payoffs,…
In this article we present a new approach to the numerical valuation of derivative securities. The method is based on our previous work where we formulated the theory of pricing in terms of tradables. The basic idea is to fit a finite…
We consider the problem of pricing path-dependent options on a basket of underlying assets using simulations. As an example we develop our studies using Asian options. Asian options are derivative contracts in which the underlying variable…
We consider optimal allocation problems with Conditional Value-At-Risk (CVaR) constraint. We prove, under very mild assumptions, the convergence of the Sample Average Approximation method (SAA) applied to this problem, and we also exhibit a…