Technical paper/Derivatives
The relative entropy of expectation and price
The replacement of risk-neutral pricing with entropic risk optimisation
Option market-making and vol arbitrage
The agent’s view is factored in to a realised-vs-implied vol model
Deep equal risk pricing of illiquid derivatives with multiple hedging instruments
The authors propose the using equal risk pricing for market-consistent valuation of illiquid financial derivatives, transferring information in liquid hedging strategy prices into the price of the illiquid derivative.
Gas market area mergers: when is bigger better?
The authors investigate welfare effects of gas market area mergers and argue that merged market areas benefit from increased market power.
Hedging of financial derivative contracts via Monte Carlo tree search
This paper applies the Monte Carlo tree search as a method for replication in the presence of risk and market friction
Pricing the transition of Scope 3 emissions
A framework to measure banks’ costs associated with carbon emissions is proposed
Information geometry of risks and returns
An innovative product design framework and its geometric interpretation is introduced
Mitigating margin procyclicality: the effectiveness of anti-procyclicality measures during the Covid-19 stress event
This paper analyzes the effectiveness of APC measures implemented by central counterparties for clearing member and client margins, with effectiveness sensitive to the details of calibration and type of portfolios to which the measure is applied.
CMS pricing: overdue annuities
An RFR-based pricing and risk management model for CMS and its derivatives is presented
Trading the vol-of-vol risk premium
Applications of the vol-of-vol parameter for cross-asset derivatives are presented
Looking beyond SA-CCR
An alternative calculation of exposure at default that handles complex portfolios is presented
Automatic implicit function theorem
New technique can improve use of adjoint algorithmic differentiation in calibration problems
Optimal exercise of callable bonds
Citi quants and structurers present a term-structure model for callable bonds' work
Linking performance of vanilla options to the volatility premium
A framework to account for vanilla options' performance in trading strategies is presented
A cost–benefit analysis of anti-procyclicality: analyzing approaches to procyclicality reduction in central counterparty initial margin models
In this paper, the authors suggest how margin setters and policy makers might measure procyclicality and target particular levels of it by recalibrating parameters in a margin model to reduce its procyclicality or by applying an anti-procyclicality tool.
Deep learning profit and loss
The P&L distribution of a complex derivatives portfolio is computed via deep learning
Brazil’s BM&F in 1999: a central counterparty near-failure case?
The authors argue that, despite some concerns on systemic risk expressed by high-level Banco Central do Brasil officers, the (potential) defaults of Marka and FonteCindam would not have been sufficient to lead BM&F to a failure.
Concentration in cleared derivatives: the case for broadening access to direct central counterparty clearing
In this paper, the authors explore the benefits and challenges of encouraging major end-users of derivatives to become direct clearing members of central counterparties (CCPs).
Gaussian process regression for derivative portfolio modeling and application to credit valuation adjustment computations
The authors present a multi-Gaussian process regression approach, which is well suited for the over-the-counter derivative portfolio valuation involved in credit valuation adjustment (CVA) computation.
The SABR forward smile
Thomas Roos presents the expressions for the implied volatilities of European and forward starting options
Interdependencies in the euro area derivatives clearing network: a multilayer network approach
This paper provides insight into how the collected data pursuant to the EMIR can be used to shed light on the complex network of interrelations underlying the financial markets.