An Explicit Scheme for Pathwise XVA Computations

Motivated by the equations of cross valuation adjustments (XVAs) in the realistic case where capital is deemed fungible as a source of funding for variation margin, we introduce a simulation/regression scheme for a class of anticipated BSDEs, where the coefficient entails a conditional expected shor...

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Veröffentlicht in:arXiv.org 2024-01
Hauptverfasser: Abbas-Turki, Lokman, Crépey, Stéphane, Li, Botao, Bouazza Saadeddine
Format: Artikel
Sprache:eng
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Zusammenfassung:Motivated by the equations of cross valuation adjustments (XVAs) in the realistic case where capital is deemed fungible as a source of funding for variation margin, we introduce a simulation/regression scheme for a class of anticipated BSDEs, where the coefficient entails a conditional expected shortfall of the martingale part of the solution. The scheme is explicit in time and uses neural network least-squares and quantile regressions for the embedded conditional expectations and expected shortfall computations. An a posteriori Monte Carlo validation procedure allows assessing the regression error of the scheme at each time step. The superiority of this scheme with respect to Picard iterations is illustrated in a high-dimensional and hybrid market/default risks XVA use-case.
ISSN:2331-8422