A BSDE approach to fair bilateral pricing under endogenous collateralization

Tianyang Nie , Marek Rutkowski


Results from Nie and Rutkowski are extended to the case of the margin account, which may depend on the contract’s value for the hedger and/or the counterparty. The present work generalizes also the papers by Bergman, Mercurio and Piterbarg. Using the comparison theorems for BSDEs, we derive inequalities for the unilateral prices and we give the range for its fair bilateral prices. We also establish results yielding the link to the market model with a single interest rate. In the case where the collateral amount is negotiated between the counterparties, so that it depends on their respective unilateral values, the backward stochastic viability property studied by Buckdahn et al. is used to derive the bounds on fair bilateral prices.
Author Tianyang Nie - [Shandong University]
Tianyang Nie,,
, Marek Rutkowski (FMIS / DSPFM)
Marek Rutkowski,,
- Department of Stochastic Processes and Financial Mathematics
Journal seriesFinance and Stochastics, ISSN 0949-2984
Issue year2016
Publication size in sheets2.25
Keywords in Polishwsteczne równania stochastyczne, wycena bezarbitrazowa
Keywords in EnglishCollateral, Fair pricing, Funding costs
ASJC Classification1804 Statistics, Probability and Uncertainty; 2003 Finance; 2613 Statistics and Probability
Abstract in PolishW pracy rozszerzono poprzednie wyniki autorów oraz uogólniono wyniki Bergmana, Mercurio i Pitebarga.
URL http://link.springer.com/article/10.1007/s00780-016-0306-2
Languageen angielski
Score (nominal)35
Score sourcejournalList
ScoreMinisterial score = 35.0, 02-02-2020, ArticleFromJournal
Ministerial score (2013-2016) = 35.0, 02-02-2020, ArticleFromJournal
Publication indicators Scopus Citations = 4; WoS Citations = 5; Scopus SNIP (Source Normalised Impact per Paper): 2016 = 1.748; WoS Impact Factor: 2016 = 1.55 (2) - 2016=1.696 (5)
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