We build a stochastic Asset Liability Management (ALM) model for a life insurance company. Therefore, we deal with both an asset portfolio, made up of bonds, equity and cash, and a liability portfolio, comprising with-prot life insurance policies.
ESR4 Roberta Simonella
In this article we mainly extend to a multi-currency setting some previous works in the literature concerning total value adjustments in a single currency framework. The motiva- tion comes from the fact that financial institutions operate in global markets, so that the financial derivatives in their portfolios involve different currencies. More precisely, in this multi-currency setting we pose the PDE formulations for pricing the total adjustment and the financial derivative with counterparty risk. Moreover, we also formulate the problem in terms of expectations, which allows the use of suitable Monte Carlo techniques that over- come the curse of dimensionality associated to the numerical solution of PDE formulation, when a high number of stochastic factors are involved. Finally, we present some examples to illustrate the performance of the formulations and the proposed numerical techniques.
Joint work with Carlos Vazquez.
In the present article we address the modelling and the numerical computation of the total value adjustment for European options in a multi-currency setting when the foreign exchange rates between the different involved currencies are assumed to be stochastic.
Since the global financial crisis of 2007–2008, different adjustments are considered in the pricing of financial products to incorporate the counterparty risk; the set of these adjustments is referred to as total value adjustment or XVA.