Funding, repo and credit inclusive valuation as modified option pricing

0Citations
Citations of this article
8Readers
Mendeley users who have this article in their library.

Abstract

We take the holistic approach of computing an OTC claim value that incorporates credit and funding liquidity risks and their interplays, instead of forcing individual price adjustments: CVA, DVA, FVA, KVA. The resulting nonlinear mathematical problem features semilinear PDEs and FBSDEs. We show that for the benchmark vulnerable claim there is an analytical solution, and we express it in terms of the Black–Scholes formula with dividends. This allows for a detailed valuation analysis, stress testing and risk analysis via sensitivities.

Cite

CITATION STYLE

APA

Brigo, D., Buescu, C., & Rutkowski, M. (2017). Funding, repo and credit inclusive valuation as modified option pricing. Operations Research Letters, 45(6), 665–670. https://doi.org/10.1016/j.orl.2017.10.009

Register to see more suggestions

Mendeley helps you to discover research relevant for your work.

Already have an account?

Save time finding and organizing research with Mendeley

Sign up for free