Efficient Computation of Various Valuation Adjustments Under Local Lévy Models

DOI10.1137/16M1099005zbMATH Open1408.91230arXiv1905.01706MaRDI QIDQ4635249FDOQ4635249

Cornelis W. Oosterlee, Anastasia Borovykh, Andrea Pascucci

Publication date: 16 April 2018

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

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.

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)

Cites Work

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Cited In (12)

• Approximate value adjustments for European claims
• 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
• Higher-order Discretization Methods of Forward-backward SDEs Using KLNV-scheme and Their Applications to XVA Pricing

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