A locally-built, LLM-digested index of recent arXiv papers in quant finance, geometry/topology, and statistical ML — keyword search served straight from SQLite on this machine.
This article provides a new representation for pricing adjustments in derivatives.
Historical returns depend on historical closing prices and distributions. We describe how to compute adjusted closing prices from closing price/distribution data with an emphasis on spreadsheet implementation. Then the growth of a security from one date to another (1 + total return) is just the ratio of the correspondi…
The paper introduces mortgage-rate-adjusted home prices to help buyers and adjust housing indices.
Heuristic pricing strategy compensates for imperfect market anticipation in dynamic pricing competition.
The paper simplifies pricing for equity swaps by accounting for various costs.
The article uses jump-telegraph models to price zero coupon bonds and adjust convexity.
Study improves MACD trading strategy with volume and price adjustments.
The paper adjusts stock and strike prices for dividends after maturity in stock call pricing.
A three-dimensional extension of the structural default model with firms' values driven by correlated diffusion processes is presented. Green's function based semi-analytical methods for solving the forward calibration problem and backward pricing problem are developed. These methods are used to analyze bilateral count…
Improved asset pricing using uncertainty-adjusted sorting in machine learning models.
New mortgage contracts reduce underwater default by adjusting loan balances, but must balance prepayment incentives.
RL accelerates portfolio optimization and option pricing by dynamically adjusting preconditioner sizes.
Optimal liquidation strategy with dynamic risk adjustment in financial markets.
The study models financial derivatives with counterparty risk and corrects valuation methods.
Pricing Chinese convertible bonds using Monte Carlo simulation and dynamic programming.
In this paper we describe how to include funding and margining costs into a risk-neutral pricing framework for counterparty credit risk. We consider realistic settings and we include in our models the common market practices suggested by the ISDA documentation without assuming restrictive constraints on margining proce…
Paper develops framework for valuing and assessing credit risk in renewable PPAs.
This essay quantifies convexities in incomplete markets using entropy, adjusting prices for risk and incompleteness.
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration problem and backward pricing problem in three dimensions are developed. The model is…
We develop a new method to price SOFR futures contracts considering convexity, skew, and smile.
Modeling stock price adjustments due to irrational agent behavior.
Paper uses bond pricing and convexity adjustments to explain herd immunity paradox.
Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is reflected in the non-uniqueness of the pricing measure, which is only constrained by the…
New method to price CVA by adjusting exposure drift to eliminate Wrong-Way Risk.
Introduces GA-P/E, a growth-adjusted stock valuation measure.
Develops a new model to better estimate cryptocurrency and stock volatility.
A Q-Learner model for discrete-time option pricing.
This article presents FVA and CVA of a bilateral derivative in a coherent manner, based on recent developments in fair value accounting and ISDA standards. We argue that a derivative liability, after primary risk factors being hedged, resembles in economics an issued variable funding note, and should be priced at the m…
We consider the problem of pricing derivatives written on some industrial loss index via utility indifference pricing. The industrial loss index is modelled by a compound Poisson process and the insurer can adjust her portfolio by choosing the risk loading, which in turn determines the demand. We compute the price of a…
The paper examines variable annuities pricing and risk management using the Black-Scholes model and identifies key risk drivers.
We develop an arbitrage-free framework for consistent valuation of derivative trades with collateralization, counterparty credit gap risk, and funding costs, following the approach first proposed by Pallavicini and co-authors in 2011. Based on the risk-neutral pricing principle, we derive a general pricing equation whe…
The paper addresses how banks adjust for capital and funding costs in incomplete markets.
Asset prices contain information about the probability distribution of future states and the stochastic discounting of those states as used by investors. To better understand the challenge in distinguishing investors' beliefs from risk-adjusted discounting, we use Perron-Frobenius Theory to isolate a positive martingal…
In two previous papers the author developed a second-order price adjustment (tâtonnement) process. This paper extends the approach to include both quantity and price adjustments. We demonstrate three results: a analogue to physical energy, called "activity" arises naturally in the model, and is not conserved in general…
The importance of collateralization through the change of funding cost is now well recognized among practitioners. In this article, we have extended the previous studies of collateralized derivative pricing to more generic situation, that is asymmetric and imperfect collateralization with the associated counter party c…
In this work we derive an approximated no-arbitrage market valuation formula for Constant Maturity Credit Default Swaps (CMCDS). We move from the CDS options market model in Brigo (2004), and derive a formula for CMCDS that is the analogous of the formula for constant maturity swaps in the default free swap market unde…
The main result of this paper is a collateralized counterparty valuation adjusted pricing equation, which allows to price a deal while taking into account credit and debit valuation adjustments (CVA, DVA) along with margining and funding costs, all in a consistent way. Funding risk breaks the bilateral nature of the va…
The paper introduces a new approach to repo pricing by incorporating gap risk and economic capital.
Model adjusts bid-offer spread in financial markets based on market conditions.
The paper reviews historical and modern approaches to asset pricing probability measures.
We reinvestigate the "rockets and feathers" effect between retail gasoline and crude oil prices in a new framework of fractional integration, long-term memory and borderline (non-)stationarity. The most frequently used error-correction model is examined in detail and we find that the prices return to their equilibrium …
In this article, we combine replication pricing with expectation pricing for derivative trades that are partially collateralized by cash. The derivatives are replicated by underlying assets and cash, using repurchasing agreement (repo) and margining, which incur funding costs. We derive a partial differential equation …
The research presented in this work is motivated by recent papers by Brigo et al. (2011), Burgard and Kjaer (2009), Crépey (2012), Fujii and Takahashi (2010), Piterbarg (2010) and Pallavicini et al. (2012). Our goal is to provide a sound theoretical underpinning for some results presented in these papers by developing …
The paper introduces a method to accurately price swaps and their Value at Risk (VaR) using dynamic trading and regression/simulation.
New measure corrects news bias in NLP stock return forecasting.
Approximates CVA of European options with WWR using correlation expansions.
Model market shows self-organized behavior with price adjustments.
We analyze the counterparty risk embedded in CDS contracts, in presence of a bilateral margin agreement. First, we investigate the pricing of collateralized counterparty risk and we derive the bilateral Credit Valuation Adjustment (CVA), unilateral Credit Valuation Adjustment (UCVA) and Debt Valuation Adjustment (DVA).…