IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1510.04588.html
   My bibliography  Save this paper

Application of Stochastic Mesh Method to Efficient Approximation of CVA

Author

Listed:
  • Yusuke Morimoto

Abstract

In this paper, the author considers the numerical computation of CVA for large systems by Mote Carlo methods. He introduces two types of stochastic mesh methods for the computations of CVA. In the first method, stochastic mesh method is used to obtain the future value of the derivative contracts. In the second method, stochastic mesh method is used only to judge whether future value of the derivative contracts is positive or not. He discusses the rate of convergence to the real CVA value of these methods.

Suggested Citation

  • Yusuke Morimoto, 2015. "Application of Stochastic Mesh Method to Efficient Approximation of CVA," Papers 1510.04588, arXiv.org.
    • Handle: RePEc:arx:papers:1510.04588
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1510.04588
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Masaaki Fujii & Akihiko Takahashi, 2010. "Asymmetric and Imperfect Collateralization, Derivative Pricing, and CVA," CIRJE F-Series CIRJE-F-781, CIRJE, Faculty of Economics, University of Tokyo.
    2. Duffie, Darrell & Huang, Ming, 1996. "Swap Rates and Credit Quality," Journal of Finance, American Finance Association, vol. 51(3), pages 921-949, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Masaaki Fujii & Akihiko Takahashi, 2012. "Perturbative Expansion of FBSDE in an Incomplete Market with Stochastic Volatility," CIRJE F-Series CIRJE-F-840, CIRJE, Faculty of Economics, University of Tokyo.
    2. Masaaki Fujii & Akihiko Takahashi, 2011. "Collateralized CDS and Default Dependence -Implications for the Central Clearing-," CIRJE F-Series CIRJE-F-799, CIRJE, Faculty of Economics, University of Tokyo.
    3. Masaaki Fujii & Akihiko Takahashi, 2011. "Analytical Approximation for Non-linear FBSDEs with Perturbation Scheme," CARF F-Series CARF-F-248, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    4. Akihiko Takahashi & Toshihiro Yamada, 2012. "An Asymptotic Expansion for Forward-Backward SDEs; A Malliavin Calculus Aproach," CIRJE F-Series CIRJE-F-865, CIRJE, Faculty of Economics, University of Tokyo.
    5. Akihiko Takahashi & Toshihiro Yamada, 2012. "An Asymptotic Expansion for Forward-Backward SDEs: A Malliavin Calculus Approach," CARF F-Series CARF-F-296, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Sep 2013.
    6. Masaaki Fujii & Akihiko Takahashi, 2011. "Analytical Approximation for Non-linear FBSDEs with Perturbation Scheme," CIRJE F-Series CIRJE-F-802, CIRJE, Faculty of Economics, University of Tokyo.
    7. Sakurai, Yuji & Uchida, Yoshihiko, 2014. "Rehypothecation dilemma: Impact of collateral rehypothecation on derivative prices under bilateral counterparty credit risk," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 361-373.
    8. Hans Dewachter & Marco Lyrio & Konstantijn Maes, 2004. "The Effect of Monetary Unification on German Bond Markets," European Financial Management, European Financial Management Association, vol. 10(3), pages 487-509, September.
    9. Mr. Jochen R. Andritzky & Mr. Manmohan Singh, 2005. "Overpricing in Emerging Market Credit-Default-Swap Contracts: Some Evidence from Recent Distress Cases," IMF Working Papers 2005/125, International Monetary Fund.
    10. McBrady, Matthew R. & Schill, Michael J., 2007. "Foreign currency-denominated borrowing in the absence of operating incentives," Journal of Financial Economics, Elsevier, vol. 86(1), pages 145-177, October.
    11. Xiao, Tim, 2018. "Bilateral Defaultable Financial Derivatives Pricing and Credit Valuation Adjustment," EconStor Preprints 202549, ZBW - Leibniz Information Centre for Economics.
    12. Augusto Castillo, 2004. "Firm and Corporate Bond Valuation: A Simulation Dynamic Programming Approach," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(124), pages 345-360.
    13. Alessandro Gnoatto & Athena Picarelli & Christoph Reisinger, 2020. "Deep xVA solver -- A neural network based counterparty credit risk management framework," Papers 2005.02633, arXiv.org, revised Dec 2022.
    14. Favero, Carlo & Pagano, Marco & von Thadden, Ernst-Ludwig, 2010. "How Does Liquidity Affect Government Bond Yields?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(1), pages 107-134, February.
    15. David Lee, 2018. "Pricing Financial Derivatives Subject to Counterparty Risk and Credit Value Adjustment," Working Papers hal-01758922, HAL.
    16. Schmeling, Maik & Schrimpf, Andreas & Steffensen, Sigurd A.M., 2022. "Monetary policy expectation errors," Journal of Financial Economics, Elsevier, vol. 146(3), pages 841-858.
    17. Jyh-Horng Lin & Min-Li Yi, 2005. "Loan Portfolio Swaps and Optimal Lending," Review of Quantitative Finance and Accounting, Springer, vol. 24(2), pages 177-198, January.
    18. Samuel Chege Maina, 2011. "Credit Risk Modelling in Markovian HJM Term Structure Class of Models with Stochastic Volatility," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2011, January-A.
    19. Duffie, Darrell, 2003. "Intertemporal asset pricing theory," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 11, pages 639-742, Elsevier.
    20. Hubner, Georges, 2001. "The analytic pricing of asymmetric defaultable swaps," Journal of Banking & Finance, Elsevier, vol. 25(2), pages 295-316, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1510.04588. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.