2018-02-06
Efficient computation of various valuation adjustments under local Lévy models
Publication
Publication
SIAM Journal on Financial Mathematics , Volume 9 - Issue 1 p. 251- 273
Various valuation adjustments (XVAs) can be written in terms of nonlinear partial integro-differential equations equivalent to forward-backward SDEs (FBSDEs). In this paper we develop a Fourier-based method for solving FBSDEs in order to efficiently and accurately price Bermudan derivatives, including options and swaptions, with XVA under the flexible dynamics of a local Lévy model: this framework includes a local volatility function and a local jump measure. Due to the unavailability of the characteristic function for such processes, we use an asymptotic approximation based on the adjoint formulation of the problem.
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| , , , , | |
| doi.org/10.1137/16M1099005 | |
| SIAM Journal on Financial Mathematics | |
| Applied mathematics for risk measures in finance and insurance, in the wake of the crisis | |
| Organisation | Centrum Wiskunde & Informatica, Amsterdam (CWI), The Netherlands |
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Borovykh, A., Pascucci, A., & Oosterlee, K. (2018). Efficient computation of various valuation adjustments under local Lévy models. SIAM Journal on Financial Mathematics, 9(1), 251–273. doi:10.1137/16M1099005 |
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