Skip to main content
  • Book
  • © 2015

Modern Derivatives Pricing and Credit Exposure Analysis

Theory and Practice of CSA and XVA Pricing, Exposure Simulation and Backtesting

Palgrave Macmillan

Authors:

Part of the book series: Applied Quantitative Finance (AQF)

Buying options

eBook
USD 79.99
Price excludes VAT (USA)
  • ISBN: 978-1-137-49484-9
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
Hardcover Book
USD 99.99
Price excludes VAT (USA)

This is a preview of subscription content, access via your institution.

Table of contents (33 chapters)

  1. Front Matter

    Pages i-xxxii
  2. Discounting

    1. Front Matter

      Pages 1-1
    2. Discounting Before the Crisis

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 3-13
    3. What Changed with the Crisis

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 14-20
    4. Clearing House Pricing

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 21-34
    5. Global Discounting

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 35-43
    6. CSA Discounting

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 44-51
    7. Fair Value Hedge Accounting in a Multi-Curve World

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 52-66
  3. Credit and Debit Value Adjustment

    1. Front Matter

      Pages 67-67
    2. Introduction

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 69-70
    3. Fundamentals

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 71-78
    4. Single Trade CVA

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 79-101
  4. Risk Factor Evolution

    1. Front Matter

      Pages 103-103
    2. Introduction — A Monte Carlo Framework

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 105-106
    3. Interest Rates

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 107-133
    4. Foreign Exchange

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 134-154
    5. Inflation

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 155-184
    6. Equity and Commodity

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 185-190
    7. Credit

      • Roland Lichters, Roland Stamm, Donal Gallagher
      Pages 191-234
  5. XVA

    1. Front Matter

      Pages 235-239

About this book

This book provides a comprehensive guide for modern derivatives pricing and credit analysis. Written to provide sound theoretical detail but practical implication, it provides readers with everything they need to know to price modern financial derivatives and analyze the credit exposure of a financial instrument in today's markets.

Keywords

  • calculus
  • derivatives
  • inflation
  • modeling
  • Simulation
  • swaps
  • valuation

Reviews

'The authors are established practitioners with many years of quant development and implementation experience in leading financial institutions. This is well reflected in the present book, rich with useful examples and covering highly relevant topics such as (among many others) real world RFE models and backtesting, normally left out by the main-stream financial literature.'

-Fabrizio Anfuso, Head of Collateralized Exposure Modelling, Credit Suisse; Visiting Lecturer, ETH Zurich and Bocconi University Milan

"The authors have achieved a matchless combination of theoretical and most importantly, practical expertise to this book. The work is complete, insightful and exact and is suitable for all professionals dealing with XVA expert and novice alike."

-Jörg Kienitz, Director and Co-Lead Quant Unit and Adjunct Associate Professor University of Cape Town

'Modern Derivatives Pricing and Credit Exposure Analysis by Lichters, Stamm and Gallagher (with whom I have collaborated) has unique strengths. There are three chapters developing discounting from a CCP point of view, a global view and a CSA-based view. There is a fully worked out multi-asset framework based on the Linear Gaussian Model (LGM) with particular depth on inflation with both Jarrow-Yildrim and Dodgson-Kainth models. It provides a forensically detailed analysis of credit processes, mapping their limitations and highlights directions that avoid them (developed in detail from the Peng-Kou approach). The XVA coverage starts with CVA/DVA and is followed by separate chapters on FVA and KVA. The usual limitations for such a comprehensive book are present, e.g. limited treatment of smile modelling in a multi-curve setup (worth a book by itself), and limited coverage of the trade-offs in XVA between the costs of hedging risks and the (capital and modelling) costs of open risks (often forced by credit market limitations). Overall, this is a thorough and practical introduction to modern derivatives pricing."

-Chris Kenyon, front office quant; author of 10 papers in the Cutting Edge section in Risk

About the authors

Roland Lichters has headed bank Risk and IT departments – building teams, processes, pricing/risk methodologies and systems. As founding Partner of Quaternion Risk Management, responsible for R&D, he focusses – besides his consulting and advisory work – on the company's QuantLib-based pricing and risk analytics products, implementing the methods covered in this book. Roland holds a PhD and Diploma in Physics and lectures part-time in Financial Engineering at Trinity College Dublin.

Roland Stamm held senior positions in a number of banks' IT and Risk Management departments before joining Quaternion Risk Management as a Partner. In his banking work, he focused on market and credit risk methodology as well as the pricing and risk management of complex financial products. Roland holds a PhD in Mathematics and is co-author of the book Discounting, LIBOR, CVA and Funding (with Chris Kenyon) as well as a part-time lecturer.

Donal Gallagher is a founding Partner and Managing Director of Quaternion Risk Management and advises CFOs and CROs on the transparent pricing, risk and capital management of complex financial instruments. His research interests include default models and portfolio credit products. Donal holds a PhD from the California Institute of Technology in Applied Mathematics and lectures part time in Financial Engineering at Trinity College Dublin.

Bibliographic Information

  • Book Title: Modern Derivatives Pricing and Credit Exposure Analysis

  • Book Subtitle: Theory and Practice of CSA and XVA Pricing, Exposure Simulation and Backtesting

  • Authors: Roland Lichters, Roland Stamm, Donal Gallagher

  • Series Title: Applied Quantitative Finance

  • DOI: https://doi.org/10.1057/9781137494849

  • Publisher: Palgrave Macmillan London

  • eBook Packages: Palgrave Economics & Finance Collection, Economics and Finance (R0)

  • Copyright Information: The Editor(s) (if applicable) and The Author(s) 2015

  • Hardcover ISBN: 978-1-137-49483-2

  • eBook ISBN: 978-1-137-49484-9

  • Series ISSN: 2947-700X

  • Series E-ISSN: 2947-7018

  • Edition Number: 1

  • Number of Pages: XXXII, 466

  • Topics: Econometrics, Business Mathematics, Financial Economics

Buying options

eBook
USD 79.99
Price excludes VAT (USA)
  • ISBN: 978-1-137-49484-9
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
Hardcover Book
USD 99.99
Price excludes VAT (USA)