Models and numerical methods for XVA pricing under mean reversion spreads in a multicurrency framework (Q6183818)

This paper is devoted to the computation of total valuation adjustments (XVA) for financial derivatives involving several currencies. More precisely, for the credit spreads, the authors consider the more realistic exponential Vasicek and CIR positive mean reversion processes. Under some modelling assumptions and using appropriate dynamic hedging methodologies, the authors obtain formulations in terms of linear and nonlinear partial differential equations, which are solved with Lagrange-Galerkin methods in low dimension. The Monte Carlo method and the quadrature formulae to approximate the integral in the XVA formulae are described. The multilevel Picard iteration method, as an alternative to solve the formulation based on expectations is also described. In Section 4, the authors present and analyze the numerical results related to some examples for different choices of the derivative payoff.