Modern Derivatives Pricing and Credit Exposure Analysis: by Roland Lichters, Roland Stamm, Donal Gallagher

By Roland Lichters, Roland Stamm, Donal Gallagher

This e-book offers a finished advisor for contemporary derivatives pricing and credits research. Written to supply sound theoretical element yet sensible implication, it presents readers with every thing they should comprehend to cost glossy monetary derivatives and research the credits publicity of a monetary software in cutting-edge markets.

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Extra resources for Modern Derivatives Pricing and Credit Exposure Analysis: Theory and Practice of CSA and XVA Pricing, Exposure Simulation and Backtesting

Example text

We could not have built the software which produced the examples shown in this text without QuantLib at its core. And finally, without the appreciation and support of our families we would simply not have been able to mobilize the time for putting together this text. 1 The risk-free rate The main ingredient for pricing is the zero curve r(t) which assigns an interest rate to any given maturity t > 0. It tells us what the value of 1 currency unit will be at time t if invested at the risk-free rate.

We could not have built the software which produced the examples shown in this text without QuantLib at its core. And finally, without the appreciation and support of our families we would simply not have been able to mobilize the time for putting together this text. 1 The risk-free rate The main ingredient for pricing is the zero curve r(t) which assigns an interest rate to any given maturity t > 0. It tells us what the value of 1 currency unit will be at time t if invested at the risk-free rate.

3 FX forwards In an FX forward, two parties agree to exchange two amounts in two different currencies at a future point in time. FX forward rates are quoted for many currency pairs for as long as ten years maturity. They are usually quoted in points that have to be added to the FX spot rate X0 to get the forward rate Xt for time t. 2 shows us that there are two equivalent ways to price the payment of one foreign currency unit at a future date as of today. That is, we have (d = domestic, f = foreign currency) f f /d dft X0 f /d = Xt f /d dftd or Xt f = dft dftd f /d X0 .

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