When defaults cannot be hedged: an actuarial approach to xVA calculations via local risk-minimization
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arXiv
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| Autori principali: | , , |
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| Natura: | Preprint |
| Pubblicazione: |
2025
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| _version_ | 1866909501826793472 |
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| author | Biagini, Francesca Gnoatto, Alessandro Oberpriller, Katharina |
| author_facet | Biagini, Francesca Gnoatto, Alessandro Oberpriller, Katharina |
| contents | We consider the pricing and hedging of counterparty credit risk and funding when there is no possibility to hedge the jump to default of either the bank or the counterparty. This represents the situation which is most often encountered in practice, due to the absence of quoted corporate bonds or CDS contracts written on the counterparty and the difficulty for the bank to buy/sell protection on her own default. We apply local risk-minimization to find the optimal strategy and compute it via a BSDE. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2502_12774 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | When defaults cannot be hedged: an actuarial approach to xVA calculations via local risk-minimization Biagini, Francesca Gnoatto, Alessandro Oberpriller, Katharina Mathematical Finance Probability Pricing of Securities 91G20, 91G30, 91G40 We consider the pricing and hedging of counterparty credit risk and funding when there is no possibility to hedge the jump to default of either the bank or the counterparty. This represents the situation which is most often encountered in practice, due to the absence of quoted corporate bonds or CDS contracts written on the counterparty and the difficulty for the bank to buy/sell protection on her own default. We apply local risk-minimization to find the optimal strategy and compute it via a BSDE. |
| title | When defaults cannot be hedged: an actuarial approach to xVA calculations via local risk-minimization |
| topic | Mathematical Finance Probability Pricing of Securities 91G20, 91G30, 91G40 |
| url | https://arxiv.org/abs/2502.12774 |