CVA for Cliquet options under Heston model
Min Wang and
The North American Journal of Economics and Finance, 2019, vol. 48, issue C, 272-282
Credit value adjustment (CVA) is an important pricing component in the counterparty credit risk (CCR) management. Cliquet options are a popular volatility product with protection against downside risk as well as significant upside potential. This paper aims to study the CVA for Cliquet options under stochastic volatility models. A partial differential equation (PDE) is first derived to price Cliquet options under the Heston model. Numerical schemes are then provided to solve the PDE and calculate exposure and CVA. Numerical tests are also carried out to examine the scheme accuracy and impacts of wrong way risk to CVA. Test results show that the numerical schemes are accurate. Wrong way risk plays an important role in pricing CVA for Cliquet options and the impact is crucial from the perspective of CCR management.
Keywords: Counterparty credit risk; Credit value adjustment; Cliquet option; Stochastic volatility; Heston model; PDE (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:48:y:2019:i:c:p:272-282
Access Statistics for this article
The North American Journal of Economics and Finance is currently edited by Hamid Beladi
More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().