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by maraai
August 5th, 2015, 1:40 pm
Forum: Trading Forum
Topic: is CVA contingent on "bank survival"?
Replies: 3
Views: 4421

is CVA contingent on "bank survival"?

<t>Thanks bearishI am aware of CVA's counterpart DVA, however there seems to be a school of thought which complicates the matter by incorporating both (i) counterparty default and (ii) bank survival in CVA as well as (iii) bank default and (iv) counterparty survival in DVA. As a result CVA becomes a...
by maraai
August 5th, 2015, 7:43 am
Forum: Trading Forum
Topic: is CVA contingent on "bank survival"?
Replies: 3
Views: 4421

is CVA contingent on "bank survival"?

<t>Most textbooks define CVA as being independent of whether the bank survives. Does it not makes sense to simultaneously consider counterparty and bank default?I am trying to ascertain whether or not "real traders" are doing this and/or should be doing this?Also, from a mathematical point of view, ...
by maraai
July 22nd, 2015, 8:31 am
Forum: Technical Forum
Topic: Stochastic modelling of LIBOR under "OIS numeraire"
Replies: 1
Views: 2819

Stochastic modelling of LIBOR under "OIS numeraire"

<t>I am not seeing a lot of research popping up where the numeraire is changed from the "LIBOR bank account" to the "OIS collateral account". Everyone seems to be frantically busy trying to decide if OIS applies to collateralised and un-collateralised trades but no one seems to talk about the impact...
by maraai
July 21st, 2015, 9:51 am
Forum: General Forum
Topic: How should collateral change the valuation approach?
Replies: 3
Views: 3533

How should collateral change the valuation approach?

<t>I would like to determine the most correct (or least incorrect) way to value a cross-currency IRS with collateral.If I understand Hull-White (OIS vs LIBOR) they are arguing that the only valid argument for changing our discount curve should be because we assume a new risk-free rate, regardless of...
by maraai
July 6th, 2015, 11:58 am
Forum: Technical Forum
Topic: Black76 anomaly
Replies: 3
Views: 2862

Black76 anomaly

Alan...have fixed the little typo, thanks.@pcaspers, thanks very much, I think that is it!
by maraai
July 6th, 2015, 11:10 am
Forum: Technical Forum
Topic: Black76 anomaly
Replies: 3
Views: 2862

Black76 anomaly

<t>I explain the reason for my question below, but for those not interested in the story I simply ask:Why would the following two payoffs produce a different option value using Black76:Payoff 1: [$]max[Strike - (Forward + spread),0][$]Payoff 2: [$]max[(Strike - spread) - Forward,0][$]where [$]spread...
by maraai
October 12th, 2014, 6:12 am
Forum: Technical Forum
Topic: Expected value of an option
Replies: 11
Views: 4452

Expected value of an option

Wonderful.Thanks for the reference.Regarding your quibble; Rest assured, I have applied Itô and solved the GBM such that I have a closed form for my n-th!Thank you very much for the help.
by maraai
October 10th, 2014, 3:58 am
Forum: Technical Forum
Topic: Expected value of an option
Replies: 11
Views: 4452

Expected value of an option

<t>Thanks.Regarding the forwards that I use:What I have done is assumed GBM for the spot and at future dates I simulate the exact value at a 95th percentile. Then, a bit naively, I use discount factors observed at [$]T=0[$] (today) and I "accrue" my simulated spot to the maturity of the option [$]T[...
by maraai
October 9th, 2014, 3:02 pm
Forum: Technical Forum
Topic: Expected value of an option
Replies: 11
Views: 4452

Expected value of an option

<t>Thanks very much. You are right in the money for most, however not sure why you add the bit about inverting.Just to reiterate, all I want to do is calculate "PFE for the life of the option". I am curious if what I am doing is grossly incorrect or not too unreasonable, or spot-on would be nice!Unf...
by maraai
October 8th, 2014, 12:36 pm
Forum: Technical Forum
Topic: Expected value of an option
Replies: 11
Views: 4452

Expected value of an option

<t>Herewith my full approachAssume GBM under real world measure for the (Gold) priceSolve and simulate exact 95-th percentileAt future dates calculate Black76. Few subtleties here. We are simulating spot but we want forward gold, so I just use today's discount factors to forward value the simualted ...
by maraai
October 8th, 2014, 4:10 am
Forum: Technical Forum
Topic: Expected value of an option
Replies: 11
Views: 4452

Expected value of an option

Of course thank you! My question is actually more around the correct approach to calculate the n-th percentile of the Potential Future Exposure (PFE) of an option during its life.For the sake of completeness I will repost the question.Thanks again
by maraai
October 7th, 2014, 5:03 pm
Forum: Technical Forum
Topic: Expected value of an option
Replies: 11
Views: 4452

Expected value of an option

<t>I am interested in the theoretical considerations regarding expected values of (Black76/Black-Scholes) option values.If I was clever enough I would start by taking the risk-neutral expectation of the option value (which itself is a risk-neutral expectation due to the FAPF) and see where this brin...
by maraai
July 10th, 2014, 8:57 am
Forum: Trading Forum
Topic: BBG Swaption vols - "Black" vs "Normal"
Replies: 2
Views: 4799

BBG Swaption vols - "Black" vs "Normal"

<t>Yes, questions around this have very likely been discussed somewhere, but my question it seems has not.I was sitting with a trader, soon to be the CVA trader at my bank and, looking at the Swaption vols on BBG to be used in our Hull-White interest rate model calibration, he (slightly unfairly) ch...
by maraai
October 12th, 2013, 4:42 pm
Forum: Numerical Methods Forum
Topic: Calibrating Hull-White in Excel
Replies: 7
Views: 11612

Calibrating Hull-White in Excel

Thanks DavidJNApologies for the delay.I had a strong suspicion that applying solver for Jamshidian was potentially the superfluous step. I will think a bit about how I can do Jamshidian more "analytically" or just without requiring solver.Much obliged.G
by maraai
October 7th, 2013, 12:40 pm
Forum: Numerical Methods Forum
Topic: Calibrating Hull-White in Excel
Replies: 7
Views: 11612

Calibrating Hull-White in Excel

<t>Thanks for the response.I am familiar with Solver in VBA. However each time Solver tries new values for [$]\sigma[$] and [$]a[$], you need to resolve another system of equations (Jamshidian process).Just to explain how Matlab currently works: Step [$]1[$]: Start with initial values for [$]\sigma[...
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