Innovations in Derivatives Markets : : Fixed Income Modeling, Valuation Adjustments, Risk Management, and Regulation.

• Superior document: Springer Proceedings in Mathematics and Statistics Series ; v.165
• Author: Glau, Kathrin.
• TeilnehmendeR: Grbac, Zorana.; Scherer, Matthias.; Zagst, Rudi.
• Place / Publishing House: Cham : : Springer International Publishing AG,, 2016.; ©2016.
• Year of Publication: 2016
• Edition: 1st ed.
• Language: English
• Series: Springer Proceedings in Mathematics and Statistics Series
• Physical Description: 1 online resource (446 pages)

Table of Contents

• Intro
• Preface
• Foreword
• Contents
• Part I Valuation Adjustments
• Nonlinearity Valuation Adjustment
• 1 Introduction
• 2 Trading Under Collateralization, Close-Out Netting, and Funding Risk
• 2.1 Collateralization
• 2.2 Close-Out Netting
• 2.3 Funding Risk
• 3 Generalized Derivatives Valuation
• 3.1 Discrete-Time Solution
• 3.2 Continuous-Time Solution
• 4 Nonlinear Valuation: A Numerical Analysis
• 4.1 Monte Carlo Pricing
• 4.2 Case Outline
• 4.3 Preliminary Valuation Under Symmetric Funding and Without Credit Risk
• 4.4 Complete Valuation Under Credit Risk, Collateral, and Asymmetric Funding
• 4.5 Nonlinearity Valuation Adjustment
• 5 Conclusions and Financial Implications
• References
• Analysis of Nonlinear Valuation Equations Under Credit and Funding Effects
• 1 Introduction
• 2 Cash Flows Analysis and First Valuation Equation
• 2.1 The Cash Flows
• 2.2 Adjusted Cash Flows Under a Simple Trading Model
• 3 An FBSDE Under mathcalF
• 4 Markovian FBSDE and PDE for widetildeVt and the Invariance Theorem
• References
• Nonlinear Monte Carlo Schemes for Counterparty Risk on Credit Derivatives
• 1 Introduction
• 2 Prices
• 2.1 Setup
• 2.2 Clean Price
• 2.3 All-Inclusive Price
• 3 TVA BSDEs
• 3.1 Full TVA BSDE
• 3.2 Partially Reduced TVA BSDE
• 3.3 Fully Reduced TVA BSDE
• 3.4 Marked Default Time Setup
• 4 TVA Numerical Schemes
• 4.1 Linear Approximation
• 4.2 Linear Expansion and Interacting Particle Implementation
• 4.3 Marked Branching Diffusion Approach
• 5 TVA Models for Credit Derivatives
• 5.1 Dynamic Gaussian Copula TVA Model
• 5.2 Dynamic Marshall--Olkin Copula TVA Model
• 5.3 Strong Versus Weak Dynamic Copula Model
• 6 Numerics
• 6.1 Numerical Results in the DGC Model
• 6.2 Numerical Results in the DMO Model
• 7 Conclusion
• References.
• Tight Semi-model-free Bounds on (Bilateral) CVA
• 1 Introduction
• 2 Counterparty Default Risk
• 3 The Main Building Blocks of CVA
• 4 Models for Counterparty Risk
• 4.1 Independence of CVA Components
• 4.2 Modeling Options on the Basis Transaction
• 4.3 Hybrid Models---An Example
• 5 Tight Bounds on CVA
• 5.1 Tight Bounds on CVA by Mass Transportation
• 5.2 An Alternative Formulation as Assignment Problem
• 6 Example
• 6.1 Setup
• 6.2 Results
• 6.3 Computation Time, Choice of Algorithm, and Impact of Assumptions
• 7 Conclusion and Outlook
• References
• CVA with Wrong-Way Risk in the Presence of Early Exercise
• 1 Introduction
• 2 CVA Pricing and WWR
• 3 The Impact of Early Exercise
• 3.1 The Pricing Problem
• 3.2 The Plain Vanilla Case
• 4 The Bermudan Swaption Case
• 5 Concluding Remarks
• References
• Simultaneous Hedging of Regulatory and Accounting CVA
• 1 Introduction
• 2 Counterparty Risk from a Regulatory Perspective: The Standardized CVA Risk Charge
• 2.1 Standardized CVA Risk Charge as Volatility
• 3 Counterparty Risk from an Accounting Perspective
• 3.1 CVA Hedging from an Accounting Perspective
• 4 Portfolio P&amp
• L
• 4.1 Portfolio P&amp
• L Without CVA
• 4.2 Impact with CVA
• 4.3 Impact of CVA Risk Charge Hedging on the Accounting P&amp
• L Volatility
• 5 Determination of the Optimal Hedge Strategy
• 5.1 Special Cases
• References
• Capital Optimization Through an Innovative CVA Hedge
• 1 Preface
• 2 The Role of Collateral in OTC Contracts and Its Legal Basis
• 2.1 The Role of Legal Versus Economic Ownership
• 2.2 Affected Market Participants
• 2.3 Financial Instruments Involving Collateral and Standard Legal Frameworks (Master Agreements)
• 2.4 Credit and Counterparty Risk Related to Collateral
• 3 Terms of Liquidity and Definition of Liquidity Transformation.
• 3.1 Terms of Liquidity
• 3.2 Comparison of Secured and Unsecured Financing
• 3.3 Liquidity Transformation
• 4 New Approach to CVA Hedging
• 4.1 Issue
• 4.2 Solution
• 4.3 Application
• 4.4 Example
• 5 Conclusion
• References
• FVA and Electricity Bill Valuation Adjustment---Much of a Difference?
• 1 Welcome
• 2 Damiano Brigo
• 3 Christian Fries
• 4 John Hull
• 5 Daniel Sommer
• 5.1 Acknowledgements, Credits, and Disclaimer
• References
• Part II Fixed Income Modeling
• Multi-curve Modelling Using Trees
• 1 Introduction
• 2 The LIBOR-OIS Spread
• 3 The Methodology
• 4 A Simple Three-Step Example
• 5 Valuation of a Spread Option
• 6 Bermudan Swap Option
• 7 Conclusions
• References
• Derivative Pricing for a Multi-curve Extension of the Gaussian, Exponentially Quadratic Short Rate Model
• 1 Introduction
• 2 Preliminaries
• 2.1 Discount Curve and Collateralization
• 2.2 Martingale Measures
• 3 Short Rate Model
• 3.1 The Model
• 3.2 Bond Prices (OIS and Libor Bonds)
• 3.3 Forward Measure
• 4 Pricing of Linear Interest Rate Derivatives
• 4.1 FRAs
• 4.2 Interest Rate Swaps
• 5 Nonlinear/optional Interest Rate Derivatives
• 5.1 Caps and Floors
• 5.2 Swaptions
• References
• Multi-curve Construction
• 1 Introduction
• 2 Foundations, Assumptions, Notation
• 3 Discount Curves
• 4 Forward Curves
• 4.1 Performance Index of a Discount Curve (or ``Self-Discounting'')
• 5 Interpolation of Curves
• 5.1 Implementing the Interpolation of a Curve: Interpolation Method and Interpolation Entities
• 5.2 Interpolation Time
• 5.3 Interpolation of Forward Curves
• 5.4 Assessment of the Interpolation Method
• 6 Implementation of the Calibration of Curves
• 6.1 Generalized Definition of a Swap
• 6.2 Calibration of Discount Curve to Swap Paying the Collateral Rate (aka. Self-Discounted Swaps).
• 6.3 Calibration of Forward Curves
• 6.4 Calibration of Discount Curves When Payment and Collateral Currency Differ
• 6.5 Lack of Calibration Instruments (for Difference in Collateralization)
• 6.6 Implementation
• 7 Redefining Forward Rate Market Models
• 8 Some Numerical Results
• 8.1 Impact of the Interpolation Entity of a Forward Curve on the Delta Hedge
• 8.2 Impact of the Lack of Calibration Instruments for the Case of a Foreign Swap Collateralized in Domestic Currency
• 8.3 Impact of the Interpolation Scheme on the Hedge Efficiency
• 9 Conclusion
• References
• Impact of Multiple-Curve Dynamics in Credit Valuation Adjustments
• 1 Introduction
• 2 Valuation Equation with Credit and Collateral
• 2.1 Valuation Framework
• 2.2 The Master Equation Under Change of Filtration
• 3 Valuing Collateralized Interest-Rate Derivatives
• 3.1 Overnight Rates and OIS
• 3.2 LIBOR Rates, IRS and Basis Swaps
• 3.3 Modeling Constraints
• 4 Interest-Rate Modeling
• 4.1 Multiple-Curve Collateralized HJM Framework
• 4.2 Numerical Results
• References
• A Generalized Intensity-Based Framework for Single-Name Credit Risk
• 1 Introduction
• 2 A General Account on Credit Risky Bond Markets
• 2.1 The Generalized Intensity-Based Framework
• 2.2 An Extension of the HJM Approach
• 3 Affine Models in the Generalized Intensity-Based Framework
• 4 Conclusion
• References
• Option Pricing and Sensitivity Analysis in the Lévy Forward Process Model
• 1 Introduction
• 2 The Lévy Forward Process Model
• 3 Fourier-Based Methods for Option Pricing
• 4 Sensitivity Analysis
• 4.1 Greeks Computed by the Malliavin Approach
• 4.2 Greeks Computed by the Fourier-Based Valuation Method
• 4.3 Examples
• References
• Inside the EMs Risky Spreads and CDS-Sovereign Bonds Basis
• 1 Introduction
• 2 Local Currency Bonds No-Arbitrage HJM Setting.
• 2.1 Risky Bonds Under Marked Point Process
• 2.2 Model Formulation
• 3 CDS-Bond Basis
• 3.1 General Notes
• 3.2 Technical Notes
• 3.3 CDS-Bond Basis Empirics
• 4 Conclusion
• References
• Part III Financial Engineering
• Basket Option Pricing and Implied Correlation in a One-Factor Lévy Model
• 1 Introduction
• 2 The One-Factor Lévy Model
• 2.1 The Model
• 2.2 The Risk-Neutral Stock Price Processes
• 3 A Three-Moments-Matching Approximation
• 3.1 Matching the First Three Moments
• 3.2 Approximate Basket Option Pricing
• 3.3 The FFT Method and Basket Option Pricing
• 4 Examples and Numerical Illustrations
• 4.1 Variance Gamma
• 4.2 Pricing Basket Options
• 5 Implied Lévy Correlation
• 5.1 Variance Gamma
• 5.2 Double Exponential
• 6 Conclusion
• References
• Pricing Shared-Loss Hedge Fund Fee Structures
• 1 Introduction
• 2 Hedge Fund Fees
• 3 The First-Loss Model
• 4 An Option Pricing Framework
• 4.1 Payoff to the Investor
• 4.2 Payoff to the Manager
• 4.3 Valuation: Pricing Fees as Derivatives
• 5 Consequences of the Derivative Pricing Framework
• 5.1 Graphical Analysis
• 5.2 Sensitivity Analysis
• 6 Conclusion
• References
• Negative Basis Measurement: Finding the Holy Scale
• 1 Introduction
• 2 Why Does Negative Basis Exist?
• 3 General Notations
• 4 Traditional Measurements
• 4.1 The Z-Spread Methodology
• 4.2 The Par-Equivalent CDS Methodology
• 5 An Innovative Methodology
• 6 Conclusion
• References
• The Impact of a New CoCo Issuance on the Price Performance of Outstanding CoCos
• 1 Introduction
• 2 The Equity Derivatives Model
• 3 Measuring the Price Performance of the Outstanding CoCos
• 3.1 New Issuances
• 3.2 CoCo Index Comparison
• 3.3 Model-Based Performance
• 4 Impact After Issue Date
• 5 Conclusion
• References
• The Impact of Cointegration on Commodity Spread Options.
• 1 Introduction.