8,368 research outputs found
Options hedging under liquidity costs
Following the framework of Cetin, Jarrow and Protter (CJP) we study the problem of super-replication in presence of liquidity costs under additional restrictions on the gamma of the hedging strategies in a generalized Black-Scholes economy. We find that the minimal super-replication price is different than the one suggested by the Black-Scholes formula and is the unique viscosity solution of the associated dynamic programming equation. This is in contrast with the results of CJP who find that the arbitrage free price of a contingent claim coincides with the Black-Scholes price. However, in CJP a larger class of admissible portfolio processes is used and the replication is achieved in the L^2 approximating
sense
CCPs, Central Clearing, CSA, Credit Collateral and Funding Costs Valuation FAQ: Re-hypothecation, CVA, Closeout, Netting, WWR, Gap-Risk, Initial and Variation Margins, Multiple Discount Curves, FVA?
We present a dialogue on Funding Costs and Counterparty Credit Risk modeling,
inclusive of collateral, wrong way risk, gap risk and possible Central Clearing
implementation through CCPs. This framework is important following the fact
that derivatives valuation and risk analysis has moved from exotic derivatives
managed on simple single asset classes to simple derivatives embedding the new
or previously neglected types of complex and interconnected nonlinear risks we
address here. This dialogue is the continuation of the "Counterparty Risk,
Collateral and Funding FAQ" by Brigo (2011). In this dialogue we focus more on
funding costs for the hedging strategy of a portfolio of trades, on the
non-linearities emerging from assuming borrowing and lending rates to be
different, on the resulting aggregation-dependent valuation process and its
operational challenges, on the implications of the onset of central clearing,
on the macro and micro effects on valuation and risk of the onset of CCPs, on
initial and variation margins impact on valuation, and on multiple discount
curves. Through questions and answers (Q&A) between a senior expert and a
junior colleague, and by referring to the growing body of literature on the
subject, we present a unified view of valuation (and risk) that takes all such
aspects into account
Funding, repo and credit inclusive valuation as modified option pricing
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.Comment: 1 figur
Systemic Risk in U.S. Crop Reinsurance Programs
This study develops a method to estimate the probability density function of the Federal Risk Management Agency's (RMA's) net income from reinsuring crop insurance for corn, wheat, and soybeans. When calibrated using 1997 data, results from the advocated method show that in 1997 there was a 5% probability RMA would have had to reimburse at least 78.7 million. Key words: crop insurance, reinsurance, Risk Management Agency, systemic risk, value at risk
The History of the Quantitative Methods in Finance Conference Series. 1992-2007
This report charts the history of the Quantitative Methods in Finance (QMF) conference from its beginning in 1993 to the 15th conference in 2007. It lists alphabetically the 1037 speakers who presented at all 15 conferences and the titles of their papers.
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