In the aftermath of the 2007 global financial crisis, banks started reflecting into derivative pricing the cost of capital and collateral funding through XVA metrics. XVA is a catch-all acronym whereby X is replaced by a letter such as C for credit, D for debt, F for funding, K for capital and...

The topics of Economic Capital modelling, reverse stress testing and credit limits are inextricably intertwined as they all focus on exceptional loss events. In this paper, we use the KVA framework in to frame these three topics within a single unified approach. We propose setting credit limits...

It is a widely recognized fact that risk-reversals play a central role in the pricing of derivatives in foreign exchange markets. It is also known that the values of risk-reversals vary stochastically with time. In this paper we introduce a stochastic volatility model with jumps and local...

A large class of generic stochastic processes which are not necessarily analytically solvable but are still numerically tractable can be described by giving transition probability kernels over a contiguous set of time intervals. From the numerical viewpoint, this procedure is highly eff ective...

We study triangulation schemes for the joint kernel of a diffusion process with uniformly continuous coefficients and an adapted, non-resonant Abelian process. The prototypical example of Abelian process to which our methods apply is given by stochastic integrals with uniformly continuous...

The industry is currently seeking to evolve collateral models based on Value-at-Risk to include Wrong-Way-Risk (WWR) add-ons. A parallel trend is to require risk managers to possess Reverse Stress Testing (RST) tools to identify extreme but plausible scenarios and hedge them pro-actively. Use...

While the 2008 shifted the attention from individual trades to netting-set counterparty risk, the evolving 2020 storyline is driven by liquidity risk at the funding-set level. The COVID turmoil brings General Wrong Way Risk (GWWR) to the fore while the impending IBOR transition amplifies...

The latest generation of volatility derivatives goes beyond variance and volatility swaps and probes our ability to price realized variance and sojourn times along bridges for the underlying stock price process. In this paper, we give an operator algebraic treatment of this problem based on...

We present a new structural model for single name equity and credit derivatives which we also correlate across reference names to produce a model for bespoke synthetic CDOs. The model captures volatility and outlook risk along with correlation risk for small and for large moves separately. We...