Risk optimisation: the noise is the signal

Benedict Burnett, Simon O’Callaghan and Tom Hulme introduce a new method of optimising the accuracy and time taken to calculate risk for an XVA trading book. They show how to make a dynamic choice of the number of paths and time discretisation focusing computational effort on calculations that give the most information in explaining the P&L

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The make-up of bank trading books can be highly variable. At one end of the spectrum are flow books, consisting of a fairly homogeneous set of qui