Efficient Option Pricing under Levy Processes, with CVA and FVA
journal contributionposted on 10.01.2017, 10:09 by C. K. Shek, J. Law, Sergei Levendorskiĭ
We generalize the Piterbarg  model to include (1) bilateral default risk as in Burgard and Kjaer , and (2) jumps in the dynamics of the underlying asset using general classes of Lévy processes of exponential type. We develop an efficient explicit-implicit scheme for European options and barrier options taking CVA-FVA into account. We highlight the importance of this work in the context of trading, pricing and management a derivative portfolio given the trajectory of regulations.