A Framework for Waterfall Pricing Using Simulation-Based Uncertainty Modeling
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arXiv
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| Main Authors: | , , , |
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| Format: | Preprint |
| Published: |
2025
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| _version_ | 1866916849191485440 |
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| author | Jean, Nicola Pera, Giacomo Le Giada, Lorenzo Nordio, Claudio |
| author_facet | Jean, Nicola Pera, Giacomo Le Giada, Lorenzo Nordio, Claudio |
| contents | We present a novel framework for pricing waterfall structures by simulating the uncertainty of the cashflow generated by the underlying assets in terms of value, time, and confidence levels. Our approach incorporates various probability distributions calibrated on the market price of the tranches at inception. The framework is fully implemented in PyTorch, leveraging its computational efficiency and automatic differentiation capabilities through Adjoint Algorithmic Differentiation (AAD). This enables efficient gradient computation for risk sensitivity analysis and optimization. The proposed methodology provides a flexible and scalable solution for pricing complex structured finance instruments under uncertainty |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2507_13324 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | A Framework for Waterfall Pricing Using Simulation-Based Uncertainty Modeling Jean, Nicola Pera, Giacomo Le Giada, Lorenzo Nordio, Claudio Pricing of Securities 91G40 (Primary) 91G40, 91G60, 91G70 (Secondary) We present a novel framework for pricing waterfall structures by simulating the uncertainty of the cashflow generated by the underlying assets in terms of value, time, and confidence levels. Our approach incorporates various probability distributions calibrated on the market price of the tranches at inception. The framework is fully implemented in PyTorch, leveraging its computational efficiency and automatic differentiation capabilities through Adjoint Algorithmic Differentiation (AAD). This enables efficient gradient computation for risk sensitivity analysis and optimization. The proposed methodology provides a flexible and scalable solution for pricing complex structured finance instruments under uncertainty |
| title | A Framework for Waterfall Pricing Using Simulation-Based Uncertainty Modeling |
| topic | Pricing of Securities 91G40 (Primary) 91G40, 91G60, 91G70 (Secondary) |
| url | https://arxiv.org/abs/2507.13324 |