A BSDE approach to fair bilateral pricing under endogenous collateralization

Tianyang Nie , Marek Rutkowski

Abstract

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
Tianyang Nie,,
-
, Marek Rutkowski ZPSMF
Marek Rutkowski,,
- Department of Stochastic Processes and Financial Mathematics
Journal seriesFinance and Stochastics, ISSN 0949-2984
Issue year2016
Vol20
No4
Pages855-900
Publication size in sheets2.25
Keywords in Polishwsteczne równania stochastyczne, wycena bezarbitrazowa
Keywords in EnglishCollateral, Fair pricing, Funding costs
Abstract in PolishW pracy rozszerzono poprzednie wyniki autorów oraz uogólniono wyniki Bergmana, Mercurio i Pitebarga.
DOIDOI:10.1007/s00780-016-0306-2
URL http://link.springer.com/article/10.1007/s00780-016-0306-2
Languageen angielski
Score (nominal)35
ScoreMinisterial score [Punktacja MNiSW] = 35.0, 28-11-2017, ArticleFromJournal
Ministerial score (2013-2016) [Punktacja MNiSW (2013-2016)] = 35.0, 28-11-2017, ArticleFromJournal
Publication indicators WoS Impact Factor [Impact Factor WoS]: 2016 = 1.55 (2) - 2016=1.696 (5)
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