We generalize the Piterbarg [1] model to include (1) bilateral default risk as in Burgard and Kjaer [2], and (2) jumps in the dynamics of the underlying asset using general classes of Lévy processes of exponential type. We develop an efficient explicit-implicit scheme for European options and barrier options taking CVA-FVA into account. We highlight the importance of this work in the context of trading, pricing and management a derivative portfolio given the trajectory of regulations.
CITATION STYLE
Shek, C. K., Law, J., & Levendorskiĭ, S. (2015). Efficient option pricing under Lévy processes, with CVA and FVA. Frontiers in Applied Mathematics and Statistics, 1. https://doi.org/10.3389/fams.2015.00006
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