Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 4, 2021 erstellt
Description:
Derivatives pricing changed drastically in 2007-2008, following the financial crisis. The failureof the Lehman Brothers refuted the myth that ”AAA” rated financial institutions cannotdefault. Basel III was introduced and implemented to reinforce existing financial market regulationsand counterparty credit risk became the primary subject of debate in financial markets’regulations. Prior to the financial crisis, derivatives pricing had its assumptions aligningto those from the Black-Scholes-Merton model. This model assumes that default risk is absent,but this financial crisis highlighted that in reality, this is not true. In this dissertation, weresearch and offer an analysis of derivatives pricing following the financial crisis whereby weextend the Black-Scholes-Merton model to incorporate default risk, collateral, funding costs,regulatory capital, and initial margin through the implementation of the model of Burgardand Kjaer called the semi-replication strategy. The primary emphasis would therefore be onthe derivation of xVAs. We also evaluate regulatory capital and initial margin methodologieswhich are used to compute KVA and MVA, respectively