Green, A;
Kenyon, C;
(2016)
XVA at the Exercise Boundary.
ArXiv: Ithaca, NY, USA.
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Abstract
XVA is a material component of a trade valuation and hence it must impact the decision to exercise options within a given netting set. This is true for both unsecured trades and secured / cleared trades where KVA and MVA play a material role even if CVA and FVA do not. However, this effect has frequently been ignored in XVA models and indeed in exercise decisions made by option owners. This paper describes how XVA impacts the exercise decision and how this can be readily evaluated using regression techniques (Longstaff and Schwartz 2001). The paper then assesses the materiality of the impact of XVA at the exercise boundary on swaption examples.
Type: | Working / discussion paper |
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Title: | XVA at the Exercise Boundary |
Open access status: | An open access version is available from UCL Discovery |
Publisher version: | https://arxiv.org/abs/1610.00256v1 |
Language: | English |
Additional information: | This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions. |
UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences > Dept of Mathematics |
URI: | https://discovery.ucl.ac.uk/id/eprint/10140249 |
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