We consider the problem of quantifying credit and funding risks in the presence of initial margin calculated by dynamically updated risk measures, such as Value-at-Risk and Expected Shortfall. The analytic scaling approach proposed in Andersen et al. [2] is generalized from a system driven by...

While convertible bond models recently have come to rest on solid theoretical foundation, issues in model calibration and numerical implementation still remain. This paper highlights and quantifies a number of such issues, demonstrating, among other things, that naiuml;ve calibration approaches...

This paper introduces stochastic volatility to the Libor market model of interest rate dynamics. As in Andersen and Andreasen (2000a) we allow for non-parametric volatility structures with freely specifiable level dependence (such as, but not limited to, the CEV formulation), but now also...

This paper presents a number of new theoretical results for replication of barrier options through a static portfolio of European put and call options. Our results are valid for options with completely general knock-out/knock-in sets, and allow for time- and state-dependent volatility as well as...

This paper investigates the effect of interest rate correlation in the pricing of Bermudan swaptions. Investigating both Gaussian Markov models and Libor Market models, we find that Bermudan swaption prices depend only weakly on the number of factors in the underlying interest rate model....

The standard approach (e.g. Dupire (1994) and Rubinstein (1994)) to fitting stock processes to observed option prices models the underlying stock price as a one-factor diffusion process with state- and time-dependent volatility. While this approach is attractive in the sense that market...

This paper considers the pricing of Bermuda-style swaptions in the Libor market model (Brace et al (1997), Jamshidian (1997), Miltersen et al (1997)) and its extensions (Andersen and Andreasen (1998)). Due to its large number of state variables, application of lattice methods to this model class...

This paper considers extensions of the Libor market model (Brace et al (1997), Jamshidian (1997), Miltersen et al (1997)) to markets with volatility skews in observable option prices. We expand the family of forward rate processes to include diffusions with non-linear forward rate dependence and...

In an influential series of papers, V. Piterbarg demonstrates how to perform time-averaging of parameters in a class of diffusion models with linear local volatility and orthogonal stochastic volatility. In this paper, we consider how to extend the applicability of parameter-averaging techniques...

We demonstrate that the funding value adjustments (FVAs) of major dealers are debt-overhang costs to their shareholders. In order to maximize shareholder value, dealer quotations therefore adjust for FVAs. Our case examples include interest-rate swap FVAs and violations of covered interest...