 Total value adjustment for European options in a multi‐currency settingIñigo Arregui, Roberta Simonella and Carlos Vázquez Applied Mathematics and Computation, 2022, vol. 413, issue C Abstract: In this article we mainly extend to a multi-currency setting some previous works in the literature concerning total value adjustments in a single currency framework. The motivation comes from the fact that financial institutions operate in global markets, so that the financial derivatives in their portfolios involve different currencies. More precisely, in this multi-currency setting we pose the PDE formulations for pricing the total adjustment and the financial derivative with counterparty risk. Moreover, we also formulate the problem in terms of expectations, which allows the use of suitable Monte Carlo techniques that overcome the curse of dimensionality associated to the numerical solution of PDE formulation, when a high number of stochastic factors are involved. Finally, we present some examples to illustrate the performance of the formulations and the proposed numerical techniques. Keywords: European options; Multi-currency; Counterparty risk; Total value adjustment; Monte Carlo method (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:apmaco:v:413:y:2022:i:c:s0096300321007311 DOI: 10.1016/j.amc.2021.126647 Access Statistics for this article Applied Mathematics and Computation is currently edited by Theodore Simos More articles in Applied Mathematics and Computation from Elsevier |
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