Total value adjustment for a stochastic volatility model. A comparison with the Black-Scholes model (Q2661015): Difference between revisions
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Revision as of 19:19, 19 March 2024
scientific article
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| English | Total value adjustment for a stochastic volatility model. A comparison with the Black-Scholes model |
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Total value adjustment for a stochastic volatility model. A comparison with the Black-Scholes model (English)
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1 April 2021
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The authors extend the Black-Sholes-Merton model to include the significant dimension of counterparty risk, XPA, while embracing the case of stochastic volatility. It follows that the model is more flexible in its description of the underlying financial dynamics. This extension applies to both European and American vanilla options. A version of the Heston partial differential equation is derived, and numerical solutions are found. Also noted, this approach is popular in the financial industry.
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(non)linear PDEs
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Heston model
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expected exposure
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potential future exposure
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credit value adjustment
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finite element method
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