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We present a general purpose technique for the efficient and accurate valuation of options in the shifted stochastic alpha, beta, rho (shifted‐SABR) model which includes SABR as a special case. The method is based on a novel double‐layer continuous‐time Markov chain from which closed form matrix expressions for European options are derived. We also propose a recursive risk‐neutral valuation technique...
The big showdown Between Accelerate, who had many grade I wins (5 in 2018) and City of Light, Something of a meaningful matchup as both were running their final races.
Leif Andersen and Mark Lake discuss the background of their new paper “Robust High‐Precision Option Pricing by Fourier Transforms: Contour Deformations and Double‐Exponential Quadrature”.
There is an increasing consensus within banks on the need to recognize the impact of rising capital requirements on their derivative business in the form of capital valuation adjustment (KVA). There are still concerns over how exactly KVA should be calculated, charged, and managed. We analyze the aspects of the costs arising due to holding of counterparty credit risk capital. This study demonstrates...
In a challenging bulk test, the Andersen‐Lake method is, on average, about ten orders of magnitude more precise tan standard adaptive Gauss‐Lobatto quadrature, and is also far more robust.
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