CVA Computing by PDE Models
نویسندگان
چکیده
In order to incorporate the credit value adjustment (CVA) in derivative contracts, we propose a set of numerical methods to solve a nonlinear partial differential equation [2] modelling the CVA. Additionally to adequate boundary conditions proposals, characteristics methods, fixed point techniques and finite elements methods are designed and implemented. A numerical test illustrates the behavior of the model and methods.
منابع مشابه
Computing Credit Valuation Adjustment for Bermudan Options with Wrong Way Risk
We study the impact of wrong way risk (WWR) on credit valuation adjustment (CVA) for Bermudan options. WWR is modeled by a dependency between the underlying asset and the intensity of the counterparty’s default. Two WWR models are proposed, based on a deterministic function and a CIR-jump (CIRJ) model, respectively. We present a nonnested Monte Carlo approach for computing CVA–VaR and CVA–expec...
متن کاملStochastic Intensity Models of Wrong Way Risk: Wrong Way CVA Need Not Exceed Independent CVA
Wrong way risk can be incorporated in Credit Value Adjustment (CVA) calculations in a reduced form model. Hull and White [16] introduced a CVA model that captures wrong way risk by expressing the stochastic intensity of a counterparty’s default time in terms of the financial institution’s credit exposure to the counterparty. We consider a class of reduced form CVA models that includes the formu...
متن کاملPDE models for total value adjustment in European and American options
Since the beginning of the last crisis, financial entities have made an important effort on managing the different aspects of risk. So, different adjustments (XVA) on risk–free derivative value are now included in derivative contracts. In particular, the credit value adjustment (CVA) refers to the increment on the price of a contract due to the possibility of default of one (or both) of the par...
متن کاملCredit contingent interest rate swap pricing
*Correspondence: [email protected] 1RBC Financial Group, 222 Bay St, M5K 1G8, Toronto, ON, Canada 2Department of Mathematics and Statistics, York University, 4700 Keele Street, M3J 1P3 Toronto, ON , Canada Full list of author information is available at the end of the article Abstract Credit value adjustment (CVA) is an adjustment to an existing trading price based on the counterparty-ri...
متن کاملToward a coherent Monte Carlo simulation of CVA
This paper is devoted to the simulation of the Credit Valuation Adjustment (CVA) using a pure Monte Carlo technique with Malliavin Calculus (MCM). The procedure presented is based on a general theoretical framework that includes a large number of models as well as various contracts, and allows both the computation of CVA and its sensitivity with respect to the different assets. Moreover, we pro...
متن کامل