The effect of self-default on the valuation of liabilities and derivatives (DVA) has been widely discussed but the effect on assets has not received similar attention. Any asset whose value depends on the status, or existence, of the firm will have a DVA. We extend Burgard&Kjaer (2011) to...

Traditionally derivatives and other assets have been valued in isolation. The balance sheet of which a derivative position is part, was not included in the valuation. Recently, aspects of the valuation have been revised to incorporate certain elements of the balance sheet in the valuation....

We consider evaluation methods for payoffs with an inherent financial risk as encountered for instance for portfolios held by pension funds and insurance companies. Pricing such payoffs in a way consistent to market prices typically involves combining actuarial techniques with methods from...

In this paper we study the stochastic area swept by a regular time-homogeneous diffusion till a stopping time. This unifies some recent literature in this area. Through stochastic time change we establish a link between the stochastic area and the stopping time of another associated...

The paper explores different portfolio structures for a passive commodity investment. It finds that an equally-weighted portfolio of up to 30 commodities delivers a Sharpe ratio similar to that of equity indexes and Treasury bonds, with much lower volatility than popular commodity indexes....

In this paper, we propose a Fenchel duality approach to study the minimization problem of the shortfall risk. We consider a general increasing and strictly convex loss function, which may be more general than the situation of convex risk measures usually assumed in the literature. We first...

This paper uses an exclusive proprietary data set of European Credit Derivatives and VIX markets, covering a sample of 5 to 7 years, to study the nature of the link between credit risk and market risk, widely acknowledged in the academic literature. This allows us to establish cointegration in...

Implied correlation and variance risk premium stand out in predicting market returns. However, while the predictive ability of implied correlation lasts for up to a year, the variance risk premium predicts market returns only for one quarter ahead. Contrary to the accepted view, implied...

The term structure of equity risk has been shown to be downward sloping. We capture this feature using return dynamics driven by both a transitory and a permanent component. We study the asset allocation and portfolio performance when transitory and permanent components cannot be observed and...

Many financial instruments are designed with embedded leverage such as options and leveraged exchange traded funds (ETFs). Embedded leverage alleviates investors' leverage constraints and, therefore, we hypothesize that embedded leverage lowers required returns. Consistent with this hypothesis,...