In this Cutting Edge research article published in the November 2015 Issue of Risk Magazine, Drs Alexandre Antonov, Marco Bianchetti and Ion Mihai develop a universal and efficient approach to numerical FVA calculation for portfolios of general instruments with multiple stochastic assets and funding sources.

The authors presented a generalized pricing framework, where the replication portfolio is split between general, non-linear functions of the portfolio value, funded with different rates, based on Antonov, Bianchetti & Mihai (2013).

In this paper, they also proposed an implementation framework for the calculation of the FVA, which provides a practical and very accurate approximation for portfolios containing both vanilla and exotic instruments. Finally, they presented the numerical results for the FVA of a partially collateralized Bermudan swaption, showcasing the high accuracy of the approximation.

Authors: Alexandre Antonov, Marco Bianchetti, Ion Mihai

Dr. Alexandre Antonov, Senior Vice President, Quantitative Research

Dr. Antonov received his PhD degree from the Landau Institute for Theoretical Physics in 1997 and joined Numerix in 1998, where he currently works as a Senior Vice President of Quantitative Research. His activity is concentrated on modeling and numerical methods for interest rates, cross currency, hybrid, credit and CVA and FVA. Dr. Antonov is a published author for multiple publications in mathematical finance, including Risk magazine and a frequent speaker at financial conferences.

 

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