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Efficient Computation of Various Valuation Adjustments Under Local Levy Models

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 Added by Anastasia Borovykh
 Publication date 2019
  fields Financial
and research's language is English




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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 Levy 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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