Funding, repo and credit inclusive valuation as modified option pricing

We take the holistic approach of computing an OTC claim value that incorporates credit and funding liquidity risks and their interplays, instead of forcing individual price adjustments: CVA, DVA, FVA, KVA. The resulting nonlinear mathematical problem features semilinear PDEs and FBSDEs. We show that for the benchmark vulnerable claim there is an analytical solution, and we express it in terms of the Black-Scholes formula with dividends. This allows for a detailed valuation analysis, stress testing and risk analysis via sensitivities.

• Publication year

  2016

• Venue

  Operations Research Letters

• Publication date

  2016-02-18

• Fields of study

  Mathematics, Business, Economics, Computer Science

• Identifiers
  DOI 10.1016/j.orl.2017.10.009arXiv 1602.05998
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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