Banking
A new arbitrage-free parametric volatility surface
A new arbitrage-free volatility surface with closed-form valuation and local volatility is introduced
Libor replacement II: completing the generalised FMM
The FMM is upgraded to model the full term structure, pricing all possible bonds and the bank account
Mind the tax when hedging TRS
New model gauges whether deals are still profitable, after taxes
Funding adjustments in equity linear products
How tax asymmetries and Tobin tax affect the pricing of total return swaps
A tale of two (or three, or four) models
Performance measure based on quality of replicating portfolios outperforms ‘P&L explain’, new paper claims
Quantifying model performance
Quality of replicating portfolio is used to measure performance of a model
Two-factor Black-Karasinski pricing kernel
Analytic formulas for bond prices and forward rates are derived by expanding existing rate models
The quadratic rough Heston model and the joint S&P 500/Vix smile calibration problem
A combination of rough volatility and price-feedback effect allows for SPX-Vix joint calibration
The SABR forward smile
Thomas Roos presents the expressions for the implied volatilities of European and forward starting options
The joint S&P 500/Vix smile calibration puzzle solved
SPX and Vix derivatives are modelled jointly in an arbitrage-free setting
Deep learning calibration of option pricing models: some pitfalls and solutions
Addressing model calibration and the issue of no-arbitrage in a deep learning approach
Smart derivative contracts: detaching transactions from counterparty credit risk
Introducing deterministic termination rules to eliminate counterparty risk in smart derivatives
Quantifying systemic risk using Bayesian networks
Creditworthiness of individual entities may offer an insight into systemic risk of financial markets
The market generator
A generative neural network is proposed to create synthetic datasets that mantain the statistical properties of the original dataset
Interpretability of neural networks: a credit card default model example
Recently developed techniques aimed at answering interpretability issues in neural networks are tested and applied to a retail banking case
One bad apple: default risk at CCPs
One clearing member's disproportionately large position increases the credit risk for all CCP members
The homotopy analysis method for derivatives pricing under wrong-way risk
Derivatives pricing is approximated with a computationally efficient homotopy-based application that accounts for WWR
The swap market Bergomi model
The combination of two popular volatility models sharpens the hedging of exotic rate derivatives
ADOL: Markovian approximation of a rough lognormal model
A variation of the rough volatility model is introduced by plugging in a different stochastic process
In the balance redux
Mats Kjaer developes a dynamic balance-sheet pricing model for valuation adjustments
Reduced-form capital optimisation
A linear approximation to an allocation technique provides a solution for banks’ capital managment
Levelling the playing field of the FRTB’s forex rules
Hany Farag argues that changing the base currency may address FRTB forex asymmetry
The minimally biased backtest for ES
Acerbi and Szekely present a backtest for expected shortfall
