An Explicit Scheme for Pathwise XVA Computations

Lokman Abbas-Turki; Stéphane Crépey; Botao Li; Bouazza Saadeddine

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arXiv · 2401.13314

An Explicit Scheme for Pathwise XVA Computations

Lokman Abbas-Turki·Stéphane Crépey·Botao Li·Bouazza Saadeddine

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Abstract

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.

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Lokman Abbas-Turki, Stéphane Crépey, Botao Li, Bouazza Saadeddine. 2024-01-24. An Explicit Scheme for Pathwise XVA Computations. https://arxiv.org/abs/2401.13314

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