27. February 2017

MiFID II & MiFIR Index: Overview of the most current regulatory documents

Before MiFID II and MiFIR become applicable throughout Europe from January 2018, numerous documents for discussion, consultation and comment have been or are expected to be published during the specification and drafting phase. In our MiFID II Index we organise…

29. April 2014

CVA/DVA wrong way risk put into practice

To account for counterparty default risk it is now common to require a credit valuation adjustment (CVA) charge. The standard CVA approach, which is also advocated by the Basel III rules, ignores potential dependencies between the client’s default probability and the exposure at default,…

24. September 2008

A Simple and Exact Simulation Approach to the Heston Model

In this paper we will propose a simple approach to simulating Heston model efficiently and accurately. All existing simulation schemes so far directly work with the mean-reverting square root process of the variance in Heston model, instead we transform the…

9. November 2007

Notes on Convexity and Quanto Adjustments for Interest Rates and Related Options

We collect simple and pragmatic exact formulae for the convexity adjustment of irregular interest rate cash flows as Libor-in-arrears or payments of a swap rate (CMS rate) at an irregular date. The results are compared with the results of an…

31. August 2006

Interest Rate Convexity and the Volatility Smile

When pricing the convexity effect in irregular interest rate derivatives such as, e.g., Libor-in-arrears or CMS, one often ignores the volatility smile, which is quite pronounced in the interest rate options market. This note solves the problem of convexity by…

6. May 2005

Cross Currency Swap Valuation

Cross currency swaps are powerful instruments to transfer assets or liabilities from one currency into another. The market charges for this a liquidity premium, the cross currency basis spread, which should be taken into account by the valuation methodology. We…