Modern Derivatives Pricing and Credit Exposure Analysis Theory and Practice of CSA and XVA Pricing, Exposure Simulation and Backtesting

'The authors are established practitioners with many years of quant development and implementation experience in leading financial institutions. This is well reflected in the present book, rich with useful examples and covering highly relevant topics such as (among many others) real world RFE models and backtesting, normally left out by the main-stream financial literature.'

-Fabrizio Anfuso, Head of Collateralized Exposure Modelling, Credit Suisse; Visiting Lecturer, ETH Zurich and Bocconi University Milan

"The authors have achieved a matchless combination of theoretical and most importantly, practical expertise to this book. The work is complete, insightful and exact and is suitable for all professionals dealing with XVA expert and novice alike."

-Jörg Kienitz, Director and Co-Lead Quant Unit and Adjunct Associate Professor University of Cape Town

'Modern Derivatives Pricing and Credit Exposure Analysis by Lichters, Stamm and Gallagher (with whom I have collaborated) has unique strengths. There are three chapters developing discounting from a CCP point of view, a global view and a CSA-based view. There is a fully worked out multi-asset framework based on the Linear Gaussian Model (LGM) with particular depth on inflation with both Jarrow-Yildrim and Dodgson-Kainth models. It provides a forensically detailed analysis of credit processes, mapping their limitations and highlights directions that avoid them (developed in detail from thePeng-Kou approach). The XVA coverage starts with CVA/DVA and is followed by separate chapters on FVA and KVA. The usual limitations for such a comprehensive book are present, e.g. limited treatment of smile modelling in a multi-curve setup (worth a book by itself), and limited coverage of the trade-offs in XVA between the costs of hedging risks and the (capital and modelling) costs of open risks (often forced by credit market limitations). Overall, this is a thorough and practical introduction to modern derivatives pricing."

-Chris Kenyon, front office quant; author of 10 papers in the Cutting Edge section in Risk