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Agostino Capponi

  1. Default and Systemic Risk in Equilibrium.

    Fri, 12/23/2011 - 15:01 — SomNambul
    Authors: Agostino Capponi, Martin Larsson
    Subjects: Pricing of Securities
    Abstract

    We develop a finite horizon continuous time market model, where risk averse
    investors maximize utility from terminal wealth by dynamically investing in a
    risk-free money market account, a stock written on a default-free dividend
    process, and a defaultable bond, whose prices are determined via equilibrium.
    We analyze financial contagion arising endogenously between the stock and the
    defaultable bond via the interplay between equilibrium behavior of investors,
    risk preferences and cyclicality properties of the default intensity.

  2. Pricing and Portfolio Optimization Analysis in Defaultable Regime-Switching Markets.

    Tue, 10/04/2011 - 15:01 — SomNambul
    Authors: Agostino Capponi, Jose Figueroa-Lopez, Jeffrey Nisen
    Subjects: Computational Finance
    Abstract

    We analyze pricing and portfolio optimization problems in defaultable regime
    switching markets. We contribute to both of these problems by obtaining novel
    characterizations of option prices and optimal portfolio strategies under
    regime-switching. Using our option price representation, we develop a novel
    efficient method to price claims which may depend on the full path of the
    underlying Markov chain. This is done via a change of probability measure and a
    short-time asymptotic expansion of the claim' s price in terms of the Laplace
    transforms of the symmetric Dirichlet distribution.

  3. Dynamic Portfolio Optimization with a Defaultable Security and Regime Switching.

    Tue, 05/03/2011 - 15:01 — SomNambul
    Authors: Agostino Capponi, Jose E. Figueroa-Lopez
    Subjects: Portfolio Management
    Abstract

    We consider a portfolio optimization problem in a defaultable market with
    finitely-many economical regimes, where the investor can dynamically allocate
    her wealth among a defaultable bond, a stock, and a money market account. The
    market coefficients are assumed to depend on the market regime in place, which
    is modeled by a finite state continuous time Markov process. We rigorously
    deduce the dynamics of the defaultable bond price process in terms of a Markov
    modulated stochastic differential equation.

  4. Collateral Margining in Arbitrage-Free Counterparty Valuation Adjustment including Re-Hypotecation and Netting.

    Fri, 01/21/2011 - 16:01 — SomNambul
    Authors: Damiano Brigo, Andrea Pallavicini, Vasileios Papatheodorou, Agostino Capponi
    Subjects: Risk Management
    Abstract

    This paper generalizes the framework for arbitrage-free valuation of
    bilateral counterparty risk to the case where collateral is included, with
    possible re-hypotecation. We analyze how the payout of claims is modified when
    collateral margining is included in agreement with current ISDA documentation.
    We then specialize our analysis to interest-rate swaps as underlying portfolio,
    and allow for mutual dependences between the default times of the investor and
    the counterparty and the underlying portfolio risk factors.

  5. Credit Default Swaps Liquidity modeling: A survey.

    Thu, 03/04/2010 - 16:01 — SomNambul
    Authors: Damiano Brigo, Agostino Capponi, Mirela Predescu
    Subjects: Risk Management
    Abstract

    We review different approaches for measuring the impact of liquidity on CDS
    prices. We start with reduced form models incorporating liquidity as an
    additional discount rate. We review Chen, Fabozzi and Sverdlove (2008) and
    Buhler and Trapp (2006, 2008), adopting different assumptions on how liquidity
    rates enter the CDS premium rate formula, about the dynamics of liquidity rate
    processes and about the credit-liquidity correlation.

  6. Bilateral counterparty risk valuation with stochastic dynamical models and application to Credit Default Swaps.

    Fri, 11/20/2009 - 16:01 — SomNambul
    Authors: Damiano Brigo, Agostino Capponi
    Subjects: Risk Management
    Abstract

    We introduce the general arbitrage-free valuation framework for counterparty
    risk adjustments in presence of bilateral default risk, including default of
    the investor. We illustrate the symmetry in the valuation and show that the
    adjustment involves a long position in a put option plus a short position in a
    call option, both with zero strike and written on the residual net value of the
    contract at the relevant default times. We allow for correlation between the
    default times of the investor, counterparty and underlying portfolio risk
    factors.

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