Banking
A non-linear PDE for XVA by forward Monte Carlo
Vladimir Piterbarg considers a non-linear partial differentiation equation that appears in a number of XVA-related contexts, including a one-way credit-support annex, credit value adjustment with risky closeout, option pricing with differential borrowing…
Collateral option valuation made easy
Vladimir Sankovich and Qinghua Zhu develop a method to value cheapest-to-deliver option embedded in CSAs
Wrong-way risk done right
Jacky Lee and Luca Capriotti present an arbitrage-free valuation method for counterparty exposure of credit derivates portfolios.
The free boundary SABR: natural extension to negative rates
Antonov, Konikov and Spector adapt the popular SABR model to a negative rates environment
Efficient XVA management: pricing, hedging and allocation
Kenyon and Green show how certain technical elements simplify XVA management
CVA and FVA with liability-side pricing
Wujiang Lou calculates CVA and FVA abiding by the law of one price
American options: time-critical pricing
Time constraints can be binding for ‘heavy’ Monte Carlo calculations of risk analytics – value-at-risk, potential future exposure, credit valuation adjustment – in intraday risk monitoring, so fast approximations are sometimes preferred. Vladislav…
Greeks with continuous adjoints: fast to code, fast to run
Marzio Sala and Vincent Thiery show the derivation of the continuous adjoint problem for PDEs
Scaling operational loss data and its systemic risk implications
A scaling methodology to include external data in operational risk calculation is introduced
MVA by replication and regression
Burgard and Kjaer method is extended to include margin valuation adjustment
Quantized calibration in local volatility
Quantization is applied to price vanilla and barrier options
Funding in option pricing: the Black-Scholes framework extended
Wujiang Lou shows the impact of funding costs on option valuation
Two measures for the price of one
Harvey Stein combines risk-neutral and real-world measures into risk methodology
Warehousing credit risk: pricing, capital and tax
Kenyon and Green model the effects to pricing of credit warehousing, capital and tax
FVA accounting, risk management and collateral trading
Albanese, Andersen and Iabichino present a method for accounting and risk managing FVAs
Pricing and hedging variance swaps on a swap rate
A pricing tool for fixed-income volatility products is introduced
Backward induction for future values
A new framework for derivatives pricing with valuation adjustments
KVA: capital valuation adjustment by replication
KVA are introduced to take into account the effect of capital on funding
Back-testing expected shortfall
Three easy-to-implement methods for back-testing expected shortfall
Path-consistent wrong-way risk
A copula-based model for wrong way risk
Short-rate joint-measure models
A joint-measure model combining Q-measure and P-measure
Path-dependent volatility
Julien Guyon on path-dependent volatility models
Credit exposure models backtesting for Basel III
The Basel Committee on Banking Supervision has introduced strict regulatory guidance on how to validate and backtest internal model methods for credit exposure. Fabrizio Anfuso, Dimitrios Karyampas and Andreas Nawroth incorporate these guidelines into a…
Regulatory costs break risk neutrality
Regulations impose idiosyncratic capital and funding costs for holding derivatives. Idiosyncratic costs mean that no single measure makes derivatives martingales for all market participants. Chris Kenyon and Andrew Green demonstrate that regulatory…