Tid: 8 juni 2018 kl 11.15-11.50.

Föredragshållare: Greta Graziani

Title: Hedging error in CVA: impact of inconsistency between simulation and pricing models

Abstract: The aim of this thesis is to investigate the hedging error in Credit Value Adjustment (CVA) produced by using a model for the simulation of the risk factors different from the one used in the pricing of the derivative contract. The hypothesis is that this inconsistency between simulation and pricing models affects the CVA leading to an error in the hedging of credit counterparty risk. When computing the CVA, market factors are simulated forward in time and the portfolio is priced in each scenario to obtain the Expected Positive Exposure (EPE). To hedge the market risk of CVA we use a dynamic Delta-hedging strategy. We investigate the hedging error for a default free portfolio and for its CVA and how it is affected by the mismatch between the models.

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