Related papers: Multi-Layer Deep xVA: Structural Credit Models, Me…
In this work we rigorously establish mathematical models to obtain the capital valuation adjustment (KVA) as part of the total valuation adjustments (XVAs). For this purpose, we use a semi-replication strategy based on market theory. We…
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…
Credit (CVA), Debit (DVA) and Funding Valuation Adjustments (FVA) are now familiar valuation adjustments made to the value of a portfolio of derivatives to account for credit risks and funding costs. However, recent changes in the…
This article prices OTC derivatives with either an exogenously determined initial margin profile or endogenously approximated initial margin. In the former case, margin valuation adjustment (MVA) is defined as the liability-side discounted…
Valuation adjustments, collectively named XVA, play an important role in modern derivatives pricing to take into account additional price components such as counterparty and funding risk premia. They are an exotic price component carrying a…
This paper considers the problem of measuring the credit risk in portfolios of loans, bonds, and other instruments subject to possible default under multi-factor models. Due to the amount of the portfolio, the heterogeneous effect of…
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,…
Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures…
A highly relevant problem of modern finance is the design of Value-at-Risk (VaR) optimal portfolios. Due to contemporary financial regulations, banks and other financial institutions are tied to use the risk measure to control their credit,…
The purpose of this paper is introducing rigorous methods and formulas for bilateral counterparty risk credit valuation adjustments (CVA's) on interest-rate portfolios. In doing so, we summarize the general arbitrage-free valuation…
In the aftermath of the 2007 global financial crisis, banks started reflecting into derivative pricing the cost of capital and collateral funding through XVA metrics. Here XVA is a catch-all acronym whereby X is replaced by a letter such as…
We provide the first convergence guarantee for full black-box variational inference (BBVI), also known as Monte Carlo variational inference. While preliminary investigations worked on simplified versions of BBVI (e.g., bounded domain,…
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,…
We develop a multilevel approach to compute approximate solutions to backward differential equations (BSDEs). The fully implementable algorithm of our multilevel scheme constructs sequential martingale control variates along a sequence of…
Variable Annuity (VA) products expose insurance companies to considerable risk because of the guarantees they provide to buyers of these products. Managing and hedging these risks requires insurers to find the value of key risk metrics for…
This paper presents a meta-learning framework for credit risk assessment of Italian Small and Medium Enterprises (SMEs) that explicitly addresses the temporal misalignment of credit scoring models. The approach aligns financial statement…
Modeling counterparty risk is computationally challenging because it requires the simultaneous evaluation of all the trades with each counterparty under both market and credit risk. We present a multi-Gaussian process regression approach,…
We study a continuous-time portfolio optimization problem under an explicit constraint on the Deviation Conditional Value-at-Risk (DCVaR), defined as the difference between the CVaR and the expected terminal wealth. While the mean-CVaR…
Classical analysis of variance requires that model terms be labeled as fixed or random and typically culminate by comparing variability from each batch (factor) to variability from errors; without a standard methodology to assess the…
Multi-step stock price prediction over a long-term horizon is crucial for forecasting its volatility, allowing financial institutions to price and hedge derivatives, and banks to quantify the risk in their trading books. Additionally, most…