Cutting edge introduction: The only way is backward
Calculating exposures of products with multiple exercise dates is cumbersome, and deal-dependent. Quants at Numerix have developed an algorithm that streamlines this process and can also help reduce operational risk. Nazneen Sherif introduces this month’s technical articles
The future value of a trade is a key part of many derivatives calculations, affecting everything from valuation adjustments to value-at-risk and potential future exposures. It is also difficult to calculate for exotic products that have multiple exercise dates, such as flexi-caps, and usually involves running two time-consuming simulations.
In this month's first technical, Backward induction for future values, Alexandre Antonov and Serguei Mechkov – senior vice-presidents of the quantitative
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