Computational Challenges in Risk Calculations for XVA: Likelihood Ratio Method to compute XVA Greeks for OTC derivatives

After the financial crisis, the standards for the valuation of financial derivatives were reviewed and several adjustments were made to these valuations, of which Credit Value Adjustment (CVA) is the most important one. CVA represents the price of counterparty credit risk that should be added to the default-free fair price of a financial...

Fill Probabilities in a Limit Order Book with Applications to Foreign Exchange Spot Markets

Financial markets continue to see an increase in the share of trades executed by algorithmic trading systems. A key component of an efficient algorithmic trading system is its ability to accurately estimate the probability an order will be executed: the fill probability. This thesis aims to determine whether the dynamics of the order book can be...

WMR prediction using recurrent neural networks on FX limit order book data

This thesis investigates the application of machine learning models on foreign exchange data around the WM/R 4pm Closing Spot Rate (colloquially known as the WMR Fix). Due to the nature of the market dynamics around the WMR Fix, inefficiencies can occur and therefore some predictability might be expected. We aim to find these inefficiencies....

Calibration of FX hybrid model with time-dependent parameters

This thesis captures the calibration of a FX hybrid model: The FX Black-Scholes Hull-White model. The main focus is on the calibration of the parameters in the Hull-White process: The mean reversion and the volatility parameter. The latter is commonly calibrated as a time-dependent parameter, whilst the mean reversion parameter is not. This...

The Heston model with Term Structure: Option Pricing and Calibration

This thesis addresses the calibration of the Heston model with term structure (i.e. with piecewise constant parameters) to a set of European option prices from the FX market. Several option pricing methods are discussed and compared, among which the COS method, Lewis' method and the Andersen QE Monte Carlo scheme. Several modifications are...

Pricing and hedging options in a negative interest rate environment

This thesis is about pricing interest rate options in a negative interest rate environment and about pricing foreign exchange barrier options. Conventional interest rate option pricing models are unable to price interest rate options in the current negative interest rate environment. Displaced versions and free boundary versions of the...

Exchange Rate Prediction using Support Vector Machines: A comparison with Artificial Neural Networks

Financial forecasting in general, and exchange rate prediction in particular, is an issue of much interest to both academic and economic communities. Being able to accurately forecast exchange rate movements provides considerable benefits to both firms and investors. This research aims to propose a decision support aid to these firms and...

On cross-currency models with stochastic volatility and correlated interest rates

We construct multi-currency models with stochastic volatility and correlated stochastic interest rates with a full matrix of correlations. We first deal with a foreign exchange (FX) model of Heston-type, in which the domestic and foreign interest rates are generated by the short-rate process of Hull-White [HW96]. We then extend the framework by...