Monte Carlo simulation
Multilevel Monte Carlo simulation for VIX options in the rough Bergomi model
The authors consider the pricing of the Chicago Board options Exchange VIX, demonstrating experiments highlighting the efficiency of a multilevel approach in pricing of VIX options.
A multivariate model for hybrid wind–photovoltaic power production with energy portfolio optimization
The authors model the power production and income of a wind-photovoltaic energy plant to determine the portfolio that maximises profitability as well as the optimal choice between wind and photovoltaic plants.
Choice of margin period of risk and netting for computing margins in central counterparty clearinghouses: a Monte Carlo investigation
The authors provide a quantitative comparison for evaluating the impact of collecting margins in a gross-versus-net system with the margin period of risk (MPOR) set to between one and five days.
Is stochastic cross-currency basis a better way to model IM?
Using Monte Carlo model extension for forward IM calculation avoids excessive outputs for MVA
Subsampling and other considerations for efficient risk estimation in large portfolios
The authors apply multilevel Monte Carlo simulation to the problems inherent in computing risk measures of a financial portfolio with large numbers of derivatives.
Modeling the exit cashflows of private equity fund investments
This paper analyzes the realized exit cashflows of individual portfolio companies in a joint modeling framework that describes both the exit timing and the exit performance.
Chebyshev Greeks: smoothing gamma without bias
A numerical method to obtain stable deltas and gammas for complex payoffs is presented
Automatic differentiation for diffusion operator integral variance reduction
This paper demonstrates applications of automatic differentiation with nested dual numbers in the diffusion operator integral variance-reduction framework originally proposed by Heath and Platen.
Efficient simulation of affine forward variance models
Andersen's quadratic-exponential scheme is used for simulations of rough volatility models
Estimating future value-at-risk from value samples, and applications to future initial margin
This paper discusses several methods to estimate fVaR or margin requirements and their expected time evolution, from simple options to more complex interest swaps.
Branching diffusions with jumps, and valuation with systemic counterparties
This paper extends the branching diffusion Monte Carlo method of Henry-Labordère et al to the case of parabolic partial differential equations with mixed local–nonlocal analytic nonlinearities.
Deutsche’s market RWAs hit 5-year low on VAR multiplier cut
Regulatory audit greenlit 0.5x cut in multiplier following bank’s overhaul of VAR approach
The impact of compounding on bond pricing with alternative reference rates
This paper looks at the impact of compounding on zero-coupon bond prices by considering the short rate when it follows a Gaussian diffusion process or a stochastic volatility jump-diffusion process.
A pricing model with dynamic credit rating transition matrixes
This paper incorporates a stochastic credit rating transition matrix into the Acharya–Das–Sundaram model and implements a simulation based pricing method
Deep learning profit and loss
The P&L distribution of a complex derivatives portfolio is computed via deep learning
Show your workings: lenders push to demystify AI models
Machine learning could help with loan decisions – but only if banks can explain how it works. And that’s not easy
Deep XVAs and the promise of super-fast pricing
Intelligent robots can value complex derivatives in minutes rather than hours
Fake data can help backtesters, up to a point
Synthetic data made with machine learning will struggle to capture the caprice of financial markets
In fake data, quants see a fix for backtesting
Traditionally quants have learnt to pick data apart. Soon they might spend more time making it up
Most EU banks use historical simulation approach to VAR
Few lenders favour Monte Carlo or parametric methodologies
Model change pumps up Deutsche’s VAR capital charge
Switch to historical simulation approach increases requirement by 71%
Deutsche Börse eyes quantum computing
Pilot application to model enterprise risks cuts computation time from 10 years to 30 minutes
SABR smiles for RFR caplets
The SABR model for volatility is adapted to price risk-free rate caplets
Solving final value problems with deep learning
Pricing vanilla and exotic options with a deep learning approach for PDEs