Funding Beyond Discounting Collateral Agreements And Derivatives Pricing

[2] Vladimir V. Piterbarg. Financing beyond discount: collateral agreements and derivative prices. Risk, pages 97-102, February 2011. [1] Michael Johannes and Suresh Sundaresan. The effect of protection on swap rates. Journal of Finance, 62 (1): 383-410, 2007. I look at a document from V. Piterbarg, Funding beyond discounting: Collateral Agreements and Derivatives Pricing, which you can download from the following link, in which the author adapts the Black-Scholes price grid to introduce guarantees and financing at a risk-free interest rate.

The standard theory of derivatives prices (see z.B Hull, 2006) is based on the assumption that one can borrow and lend at a single risk-free interest rate. However, the realities of being a derivative window today are somewhat different, as historically stable relationships are broken down between bank financing rates, government interest rates, Libor rates, etc. [6] Antonio Castagna. Fixing the price of guaranteed derivatives contracts when several currencies are concerned: liquidity and financial value adjustments. SSRN, 2012. Available at SSRN: ssrn.com/abstract 2073300. [11] Christoph Burgard and Mats Kjaer. Partial differential equations of counterparty risk derivatives and financing costs. Journal of Credit Risk, 7(3):75-93, 2011. [9] Leon F. Guerrero, Shi Jin, Henrike Koepke, Elham Negahdary, Binbin Wang, Tong Zhao and Yeqi He. Evaluation of otc derivatives with protection.

Final Progress Report of Mathematical Modeling in Industry Workshop XVI, Calgary, Canada, pages 18-27, June 2012. Available at: www.ima.umn.edu/ 2011-2012/MM6. 12/activities/He-Ritchie/7. Masaaki Fujii, Yasufumi Shimada and Akihiko Takahashi. An indication on the construction of several swap curves with or without warranty. FSA Research Review, 6:139-157, March 2010. This paper examines the valuation of a partially guaranteed derivative in a given foreign currency that is traded in its credit support annex between default counterparties. Two pricing approaches — through coverage and waiting — are presented to obtain the same valuation formulas. Our results show that the current reference value of such a derivative consists of three components: the price of the perfectly guaranteed derivative (also known as collateral-discount prices), depreciation due to different financing differences between the payment currency and the collateral currency and the depreciation related to the financing needs of unsecured risk. These results generalize previous work on the discounting of fully guaranteed derivatives and the depreciation of partially guaranteed or unsecured derivatives. [14] John C. Hull and Alan White.

Libor vs. ois: The dilemma of reducing derivatives. SSRN, 2012. Available at SSRN: ssrn.com/abstract=2211800. [12] Andrea Pallavicini, Daniele Perini and Damiano Brigo. Adaptation of the evaluation of funding: a single framework with cva, dva, guarantees, compensation rules and re-mortgage. SSRN, 2011. Available at SSRN: ssrn.com/abstract=1969114. [15] John C.

Hull and Alan White. Collateral and credit issues in derivatives. Technical report, 2013. Available at www-2.rotman.utoronto.ca/hull/DownloadablePublications/FVAandBSM.pdf. The default theory assumes that traders can borrow and borrow at a risk-free rate, ignoring the intricacies of pension and guarantee markets.