Notes on Backward Stochastic Differential Equations for Computing XVA

Jun Sekine and Akihiro Tanaka

Papers from arXiv.org

Abstract: The X-valuation adjustment (XVA) problem, which is a recent topic in mathematical finance, is considered and analyzed. First, the basic properties of backward stochastic differential equations (BSDEs) with a random horizon in a progressively enlarged filtration are reviewed. Next, the pricing/hedging problem for defaultable over-the-counter (OTC) derivative securities is described using such BSDEs. An explicit sufficient condition is given to ensure the non-existence of an arbitrage opportunity for both the seller and buyer of the derivative securities. Furthermore, an explicit pricing formula is presented in which XVA is interpreted as approximated correction terms of the theoretical fair price.

Date: 2020-06
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2006.02173 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2006.02173

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().