XVA Analysis From the Balance Sheet
| Autor: | Albanese, Claudio, Crepey, Stephane, Hoskinson, Rodney, Saadeddine, Bouazza |
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| Rok vydání: | 2020 |
| Předmět: | |
| Druh dokumentu: | Working Paper |
| DOI: | 10.1080/14697688.2020.1817533 |
| Popis: | XVAs denote various counterparty risk related valuation adjustments that are applied to financial derivatives since the 2007--09 crisis. We root a cost-of-capital XVA strategy in a balance sheet perspective which is key in identifying the economic meaning of the XVA terms. Our approach is first detailed in a static setup that is solved explicitly. It is then plugged in the dynamic and trade incremental context of a real derivative banking portfolio. The corresponding cost-of-capital XVA strategy ensures to bank shareholders a submartingale equity process corresponding to a target hurdle rate on their capital at risk, consistently between and throughout deals. Set on a forward/backward SDE formulation, this strategy can be solved efficiently using GPU computing combined with deep learning regression methods in a whole bank balance sheet context. A numerical case study emphasizes the workability and added value of the ensuing pathwise XVA computations. Comment: This is an Accepted Manuscript of an article to be published by Taylor & Francis in Quantitative Finance, which will be available online (once published) at: https://doi.org/10.1080/14697688.2020.1817533 |
| Databáze: | arXiv |
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