Related papers: Multi-Layer Deep xVA: Structural Credit Models, Me…
High-dimensional partial differential equations (PDE) appear in a number of models from the financial industry, such as in derivative pricing models, credit valuation adjustment (CVA) models, or portfolio optimization models. The PDEs in…
Modeling and managing portfolio risk is perhaps the most important step to achieve growing and preserving investment performance. Within the modern portfolio construction framework that built on Markowitz's theory, the covariance matrix of…
It is a well known fact that recovery rates tend to go down when the number of defaults goes up in economic downturns. We demonstrate how the loss given default model with the default and recovery dependent via the latent systematic risk…
We approach structured output prediction by optimizing a deep value network (DVN) to precisely estimate the task loss on different output configurations for a given input. Once the model is trained, we perform inference by gradient descent…
The importance of counterparty credit risk to the derivative contracts was demonstrated consistently throughout the financial crisis of 2008. Accurate valuation of Credit value adjustment (CVA) is essential to reflect the economic values of…
This paper introduces a new semi-parametric approach to the pricing and risk management of bespoke CDO tranches, with a particular attention to bespokes that need to be mapped onto more than one reference portfolio. The only user input in…
We consider calculation of capital requirements when the underlying economic scenarios are determined by simulatable risk factors. In the respective nested simulation framework, the goal is to estimate portfolio tail risk, quantified via…
Markowitz laid the foundation of portfolio theory through the mean-variance optimization (MVO) framework. However, the effectiveness of MVO is contingent on the precise estimation of expected returns, variances, and covariances of asset…
We compare two different bilateral counterparty valuation adjustment (BVA) formulas. The first formula is an approximation and is based on subtracting the two unilateral Credit Valuation Adjustment (CVA)'s formulas as seen from the two…
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration…
For many decades now, Bayesian Model Averaging (BMA) has been a popular framework to systematically account for model uncertainty that arises in situations when multiple competing models are available to describe the same or similar…
A deep BSDE approach is presented for the pricing and delta-gamma hedging of high-dimensional Bermudan options, with applications in portfolio risk management. Large portfolios of a mixture of multi-asset European and Bermudan derivatives…
This paper presents comparison results and establishes risk bounds for credit portfolios within classes of Bernoulli mixture models, assuming conditionally independent defaults that are stochastically increasing with a common risk factor.…
Affine Diffusion dynamics are frequently used for Valuation Adjustments (xVA) calculations due to their analytic tractability. However, these models cannot capture the market-implied skew and smile, which are relevant when computing xVA…
The use of CVA to cover credit risk is widely spread, but has its limitations. Namely, dealers face the problem of the illiquidity of instruments used for hedging it, hence forced to warehouse credit risk. As a result, dealers tend to offer…
Global bundle adjustment is made easy by depth prediction and convex optimization. We (i) propose a scaled bundle adjustment (SBA) formulation that lifts 2D keypoint measurements to 3D with learned depth, (ii) design an empirically tight…
In this paper we introduce a novel approach to risk estimation based on nonlinear factor models - the "StressVaR" (SVaR). Developed to evaluate the risk of hedge funds, the SVaR appears to be applicable to a wide range of investments. Its…
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:…
In this work, we present a novel forward differential deep learning-based algorithm for solving high-dimensional nonlinear backward stochastic differential equations (BSDEs). Motivated by the fact that differential deep learning can…
In this paper, we study large losses arising from defaults of a credit portfolio. We assume that the portfolio dependence structure is modelled by the Archimedean copula family as opposed to the widely used Gaussian copula. The resulting…