Mauro Cesa
Quanto adjustments in the presence of stochastic volatility
Original headline:
Source: Risk magazine
It is well known that the quanto adjustment in the drift of the underlying has a significant impact on the prices of quanto options. Alexander Giese points out that an additional quanto adjustment in the...
Original headline:
Source: Risk magazine
Lorenzo Bergomi and Julien Guyon derive an expansion of the volatility surface of general stochastic volatility models at second order in volatility of volatility that is accurate for a wide range of strikes....
Original headline:
Source: Risk magazine
Propagating causal stress tests on selected risk factors to all the risk drivers is a challenging task. Attilio Meucci relies on entropy pooling to address this issue
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More Mauro Cesa articles
Constant maturity asset swap convexity correction
Original headline:
Source: Risk magazine
The current high volatility in government bond markets may lead investors to try to hedge their exposure to floating-asset swap spreads. Mario Pucci obtains an analytical convexity correction for the asset swap spread that is useful for pricing constant...
CMS: covering all bases
Original headline:
Source: Risk magazine
Simon Cedervall and Vladimir Piterbarg develop a new vanilla model that directly links constant maturity swap (CMS) and payment convexity in general payouts to volatilities of swaptions of all relevant tenors, as well as prices of CMS spread options,...
Downgrade termination costs
Original headline:
Source: Risk magazine
Ratings-based (RB) additional termination event (ATE) clauses in International Swaps and Derivatives Association agreements can have a significant impact on the valuation of derivatives portfolios when rating events occur. Fabio Mercurio, Roberto Caccia...
Hybrid correlation matrices
Original headline:
Source: Risk magazine
Integrating available implied volatility data into a historical correlation matrix is an essential part of calibrating a Monte Carlo credit value adjustment pricing simulation at the portfolio level, but can yield nonsensical results. Someshwar Roy and...
Analytical risk contributions for non-linear portfolios
Original headline:
Source: Risk magazine
The value-at-risk of portfolios needs to account for non-linear effects in the loss distribution’s dependence on risk factors. Using the classical Cornish-Fisher expansion, Helmut Lutz and Carsten Wehn derive analytical formulas for risk contributions...
Perturbed Gaussian copula: introducing the skew effect in co-dependence...
Original headline:
Source: Risk magazine
Gaussian copula models are often used in the industry when single-asset information is quoted but little is known about their joint relation. These models may arise from correlated stochastic Brownian processes with deterministic volatility and correlation....
Being particular about calibration
Original headline:
Source: Risk magazine
Following previous work on the calibration of multi-factor local stochastic volatility models to market smiles, Julien Guyon and Pierre Henry-Labordère show how to calibrate exactly any such model. Their approach, based on McKean’s particle method,...
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