Rational Multi-Curve Models with Counterparty-Risk Valuation Adjustments

Research output: Contribution to journal › Journal article › Research › peer-review

Standard

Rational Multi-Curve Models with Counterparty-Risk Valuation Adjustments. / Crepey, Stephane; Macrina, Andrea; Nguyen, Tuyet Mai; Skovmand, David.

In: Quantitative Finance, Vol. 16, No. 6, 2016.

Research output: Contribution to journal › Journal article › Research › peer-review

Harvard

Crepey, S, Macrina, A, Nguyen, TM & Skovmand, D 2016, 'Rational Multi-Curve Models with Counterparty-Risk Valuation Adjustments', Quantitative Finance, vol. 16, no. 6.

APA

Crepey, S., Macrina, A., Nguyen, T. M., & Skovmand, D. (2016). Rational Multi-Curve Models with Counterparty-Risk Valuation Adjustments. Quantitative Finance, 16(6).

Vancouver

Crepey S, Macrina A, Nguyen TM, Skovmand D. Rational Multi-Curve Models with Counterparty-Risk Valuation Adjustments. Quantitative Finance. 2016;16(6).

Author

Crepey, Stephane ; Macrina, Andrea ; Nguyen, Tuyet Mai ; Skovmand, David. / Rational Multi-Curve Models with Counterparty-Risk Valuation Adjustments. In: Quantitative Finance. 2016 ; Vol. 16, No. 6.

Bibtex

@article{79b7177769384c6592fda28ecdfe4f7f,
title = "Rational Multi-Curve Models with Counterparty-Risk Valuation Adjustments",
abstract = "We develop a multi-curve term structure setup in which the modelling ingredients are expressed by rational functionals of Markov processes. We calibrate to LIBOR swaptions data and show that a rational two-factor lognormal multi-curve model is sufficient to match market data with accuracy. We elucidate the relationship between the models developed and calibrated under a risk-neutral measure Q and their consistent equivalence class under the real-world probability measure P. The consistent P-pricing models are applied to compute the risk exposures which may be required to comply with regulatory obligations. In order to compute counterparty-risk valuation adjustments, such as CVA, we show how positive default intensity processes with rational form can be derived. We flesh out our study by applying the results to a basis swap contract.",
keywords = "q-fin.MF",
author = "Stephane Crepey and Andrea Macrina and Nguyen, {Tuyet Mai} and David Skovmand",
note = "34 pages, 9 figures",
year = "2016",
language = "English",
volume = "16",
journal = "Quantitative Finance",
issn = "1469-7688",
publisher = "Routledge",
number = "6",

}

RIS

TY - JOUR

T1 - Rational Multi-Curve Models with Counterparty-Risk Valuation Adjustments

AU - Crepey, Stephane

AU - Macrina, Andrea

AU - Nguyen, Tuyet Mai

AU - Skovmand, David

N1 - 34 pages, 9 figures

PY - 2016

Y1 - 2016

N2 - We develop a multi-curve term structure setup in which the modelling ingredients are expressed by rational functionals of Markov processes. We calibrate to LIBOR swaptions data and show that a rational two-factor lognormal multi-curve model is sufficient to match market data with accuracy. We elucidate the relationship between the models developed and calibrated under a risk-neutral measure Q and their consistent equivalence class under the real-world probability measure P. The consistent P-pricing models are applied to compute the risk exposures which may be required to comply with regulatory obligations. In order to compute counterparty-risk valuation adjustments, such as CVA, we show how positive default intensity processes with rational form can be derived. We flesh out our study by applying the results to a basis swap contract.

AB - We develop a multi-curve term structure setup in which the modelling ingredients are expressed by rational functionals of Markov processes. We calibrate to LIBOR swaptions data and show that a rational two-factor lognormal multi-curve model is sufficient to match market data with accuracy. We elucidate the relationship between the models developed and calibrated under a risk-neutral measure Q and their consistent equivalence class under the real-world probability measure P. The consistent P-pricing models are applied to compute the risk exposures which may be required to comply with regulatory obligations. In order to compute counterparty-risk valuation adjustments, such as CVA, we show how positive default intensity processes with rational form can be derived. We flesh out our study by applying the results to a basis swap contract.

KW - q-fin.MF

M3 - Journal article

VL - 16

JO - Quantitative Finance

JF - Quantitative Finance

SN - 1469-7688

IS - 6

ER -

ID: 188789340