Efficient computation of various valuation adjustments under local Lévy models

DOI10.1137/16M1099005MaRDI QIDQ4635249zbMATH OpenFDO

Authors Anastasia Borovykh, Andrea Pascucci, Cornelis W. Oosterlee

Publication date 16 April 2018

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1905.01706

zbMATH Keywords

characteristic functionfast Fourier transformBSDECVAXVA

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Numerical methods (including Monte Carlo methods) (91G60) Numerical solutions to stochastic differential and integral equations (65C30) Numerical methods for discrete and fast Fourier transforms (65T50)

Abstract: Various valuation adjustments, or XVAs, can be written in terms of non-linear PIDEs equivalent to 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 L'evy 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.

Recommendations

• Approximate value adjustments for European claims
• Adjoint expansions in local Lévy models
• Pricing Bermudan options under local Lévy models with default
• AAD and least-square Monte Carlo: fast Bermudan-style options and XVA Greeks
• Fourier space time-stepping for option pricing with Lévy models

Cites work

• A Fourier cosine method for an efficient computation of solutions to BSDEs
• A family of density expansions for Lévy-type processes
• A generalized \(\theta\)-scheme for solving backward stochastic differential equations
• A jump to default extended CEV model: an application of Bessel processes
• A novel pricing method for European options based on Fourier-cosine series expansions
• Adjoint expansions in local Lévy models
• Backward stochastic differential equations with jumps and their actuarial and financial applications. BSDEs with jumps
• Efficient computation of exposure profiles for counterparty credit risk
• Least-squares Monte Carlo for backward SDEs
• PDE and martingale methods in option pricing.
• PRICING EQUITY DERIVATIVES SUBJECT TO BANKRUPTCY
• Pricing Bermudan options under local Lévy models with default
• Pricing early-exercise and discrete barrier options by Fourier-cosine series expansions
• Pricing vulnerable claims in a Lévy-driven model
• The stochastic grid bundling method: efficient pricing of Bermudan options and their Greeks
• Valuing American options by simulation: a simple least-squares approach

Cited in

(13)

• Approximate value adjustments for European claims
• Higher-order discretization methods of forward-backward SDEs using KLNV-scheme and their applications to XVA pricing
• Fast barrier option pricing by the COS BEM method in Heston model (with Matlab code)
• Total value adjustment for European options in a multi-currency setting
• CCF approach for asymptotic option pricing under the CEV diffusion
• Models and numerical methods for XVA pricing under mean reversion spreads in a multicurrency framework
• Analytical and numerical solutions to ergodic control problems arising in environmental management
• Efficient parallel Monte-Carlo techniques for pricing American options including counterparty credit risk
• Computing credit valuation adjustment solving coupled PIDEs in the Bates model
• Numerical methods for backward stochastic differential equations: a survey
• Deep xVA Solver: A Neural Network–Based Counterparty Credit Risk Management Framework
• Total value adjustment of Bermudan option valuation under pure jump Lévy fluctuations
• An SGBM-XVA demonstrator: a scalable Python tool for pricing XVA

This page was built for publication: Efficient computation of various valuation adjustments under local Lévy models

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q4635249)