Total Value Adjustment of Multi-Asset Derivatives under Multivariate CGMY Processes
Fractal and Fractional
; 7(4):308, 2023.
Article
in English
| ProQuest Central | ID: covidwho-2305831
ABSTRACT
Counterparty credit risk (CCR) is a significant risk factor that financial institutions have to consider in today's context, and the COVID-19 pandemic and military conflicts worldwide have heightened concerns about potential default risk. In this work, we investigate the changes in the value of financial derivatives due to counterparty default risk, i.e., total value adjustment (XVA). We perform the XVA for multi-asset option based on the multivariate Carr–Geman–Madan–Yor (CGMY) processes, which can be applied to a wider range of financial derivatives, such as basket options, rainbow options, and index options. For the numerical methods, we use the Monte Carlo method in combination with the alternating direction implicit method (MC-ADI) and the two-dimensional Fourier cosine expansion method (MC-CC) to find the risk exposure and make value adjustments for multi-asset derivatives.
Mathematics; counterparty credit risk; total value adjustment; CGMY process; Monte Carlo simulation; ADI method; 2D Fourier expansion; Numerical analysis; Default; Partial differential equations; Economic crisis; International finance; Valuation; Implicit methods; Monte Carlo method; Numerical methods; Alternating direction implicit methods; Credit risk; Multivariate analysis
Full text:
Available
Collection:
Databases of international organizations
Database:
ProQuest Central
Language:
English
Journal:
Fractal and Fractional
Year:
2023
Document Type:
Article
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