Risk magazine/Technical paper
Isolating a risk premium on the volatility of volatility
Lorenzo Ravagli shows how to exploit a risk premium embedded in the vol of vol in out-of-the-money options
CVA with Greeks and AAD
Reghai, Kettani and Messaoud present new technique to calculate CVA using adjoints
Risk budgeting and diversification based on optimised uncorrelated factors
Meucci, Santangelo and Deguest introduce a risk decomposition method based on minimum-torsion bets
Jumping with default: wrong-way risk modelling for CVA
Fabio Mercurio and Minqiang Li investigate CVAs in the presence of wrong-way risk
FVA for general instruments
Alexander Antonov, Bianchetti and Mihai develop a universal and efficient approach to numerical FVA calculation
Cutting edge introduction: Expanding collateral options
Two RBC quants propose a way to value CSAs with more than two currency posting options
A non-linear PDE for XVA by forward Monte Carlo
Vladimir Piterbarg considers a non-linear partial differentiation equation that appears in a number of XVA-related contexts, including a one-way credit-support annex, credit value adjustment with risky closeout, option pricing with differential borrowing…
Collateral option valuation made easy
Vladimir Sankovich and Qinghua Zhu develop a method to value cheapest-to-deliver option embedded in CSAs
Cutting Edge introduction: Sticky SABR
Quants develop a hassle-free model that can handle negative interest rates
Wrong-way risk done right
Jacky Lee and Luca Capriotti present an arbitrage-free valuation method for counterparty exposure of credit derivates portfolios.
The free boundary SABR: natural extension to negative rates
Antonov, Konikov and Spector adapt the popular SABR model to a negative rates environment
Cutting Edge introduction: Law-abiding FVA
HSBC quant develops an FVA model that preserves the law of one price
Efficient XVA management: pricing, hedging and allocation
Kenyon and Green show how certain technical elements simplify XVA management
CVA and FVA with liability-side pricing
Wujiang Lou calculates CVA and FVA abiding by the law of one price
Cutting edge introduction: Adjoints - maintaining the legacy
Quants at UBS show how to speed up the calculation of sensitivities without tearing up legacy code
American options: time-critical pricing
Time constraints can be binding for ‘heavy’ Monte Carlo calculations of risk analytics – value-at-risk, potential future exposure, credit valuation adjustment – in intraday risk monitoring, so fast approximations are sometimes preferred. Vladislav…
Greeks with continuous adjoints: fast to code, fast to run
Marzio Sala and Vincent Thiery show the derivation of the continuous adjoint problem for PDEs
Cutting Edge introduction: Creative stress testing
New stress-testing method offers a break from decades-old traditio
Stress testing in non-normal markets via entropy pooling
Ardia and Meucci introduce a parametric entropy pooling approach to portfolios stress testing
Scaling operational loss data and its systemic risk implications
A scaling methodology to include external data in operational risk calculation is introduced
MVA by replication and regression
Burgard and Kjaer method is extended to include margin valuation adjustment
Tail risk premiums versus pure alpha
Tail-risk skewness, rather than volatility, is correlated with risk premiums
Cutting edge introduction: Funding holes in Black-Scholes
HSBC quant builds funding costs and haircuts into Black-Scholes option pricing formula
Quantized calibration in local volatility
Quantization is applied to price vanilla and barrier options