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arXiv · 1905.01706

Efficient Computation of Various Valuation Adjustments Under Local L\'evy Models

Anastasia Borovykh·Andrea Pascucci·Cornelis W. Oosterlee
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Abstract

Various valuation adjustments, or XVAs, can be written in terms of non-linear PIDEs equivalent to FBSDEs. In this paper we develop a Fourier-based method for solving FBSDEs in order to efficiently and accurately price Bermudan derivatives, including options and swaptions, with XVA under the flexible dynamics of a local L\'evy model: this framework includes a local volatility function and a local jump measure. Due to the unavailability of the characteristic function for such processes, we use an asymptotic approximation based on the adjoint formulation of the problem.

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Anastasia Borovykh, Andrea Pascucci, Cornelis W. Oosterlee. 2019-05-05. Efficient Computation of Various Valuation Adjustments Under Local L\'evy Models. https://arxiv.org/abs/1905.01706

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