We study discretizations of polynomial processes using finite state Markov processes satisfying suitable moment matching conditions. The states of these Markov processes together with their transition probabilities can be interpreted as Markov cubature rules. The polynomial property allows us to...

Chen and Shen (2003) argue that it is possible to improve the Least Squares Monte Carlo Method (LSMC) of Longstaff and Schwartz (2001) to value American options by removing the least squares regression module. This would make not only faster but also more accurate. We demonstrate, using a large...

After Lehman default (credit crisis 2007), practitioners considered the default risk as a major risk. The regulators pushed the industry to use collateral in order to reduce the risk. In this new world, we want to see how this new considerations affect the theory related to the Partial...

An uncollateralized swap hedged back-to-back by a CCP swap is used to introduce FVA. The open IR01 of FVA, however, is a sure sign of risk not being fully hedged, a theoretical no-arbitrage pricing concern, and a bait to lure market risk capital, a practical business concern. By dynamically...

Funding Valuation Adjustment (FVA) has been introduced as the CVA and DVA after the default of Lehman Brother. After the subprime crisis, the basis spread was not negligible anymore, credit and liquidity risk became the first concern. In addition, regulators put in place reforms, which associate...

According to IFRS 9, an Entity shall assess - by performing a quantitative assessment - the relevance of the modification of the time value of money element, i.e. the modification of the interest that can be observed, e.g. in all the instruments whose underlying interest rate tenors are...

According to IFRS 9, an Entity shall assess – by performing a quantitative assessment – the relevance of the modification of the time value of money element, i.e. the modification of the interest that can be observed, e.g. in all the instruments whose underlying interest rate tenors are...

Monte Carlo simulation or probability simulation is a technique used to understand the impact of risk and uncertainty in financial and other forecasting models. It is very useful when complex financial instruments need to be priced. Exotic options are listed on the JSE on its Can-Do platform....

Banks must manage their trading books, not just value them. Pricing includes valuation adjustments collectively known as XVA (at least credit, funding, capital and tax), so management must also include XVA. In trading book management we focus on pricing, hedging, and allocation of prices or...