Risk measure, XVA Analysis, Cost of Capital and Central Counterparties Workshop

In this workshop a number of topics were discussed. In primis several valuation adjustments (denoted by the generic name XVA) such as CVA, FVA, and KVA. The level of all the seminars was very high and you needed some previous knowledge of the subject in order to fully appreciate them. I want to highlight three speakers that, in my humble opinion, gave excellent presentations.

The first one is Hans Föllmer that presented his work on Local vs Global Risk Assessment in which the systemic risk is considered as the limit of an infinitely-large network of financial institutions each of which has its own risk.

The second one is the work of Claudio Albanese from Global Valuation (from which I have no affiliation). In this work several XVA measures, namely CVA, FVA, and MVA, are computed using a huge Monet Carlo simulation that takes into account the large number of underlying risk factors. In a related work Gary Wong has shown the complexity involved in the computation of XVA’s starting from the special case of a Target Redemption Note (TARN).

The last, but by no means the least, was the work presented by Dilip B. Madan on Financial Relativities and Conic Trading. I particularly enjoyed his seminars because it introduced me to the notion of the two-price economy: a generalization of the traditional equilibrium single-price economy. According to this theory the absence of a single discount factor is a consequence of the theory. Also the traditional asset price computed as the expectation according to the risk-neutral measure is generalized to a non-liner expectation computed on a distortion measure. In my opinion this is the direction that the future theoretical work in quantitative finance should go.

Marco Marchioro in the crowd at the XVA Analysis conference in April 2016

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