The paper proposes a methodology to compute the valuation adjustment that an intermediary would charge to a customer for an Over-The-Counter (OTC) derivative contract. The adjustment accounts for the market liquidity of the undelying asset of the contract. A binomial example illustrates how to determine the fee of an OTC contract based on information on the market slippage (the net supply curve of the underlying), the risk aversion of the customer and his liquidity constraint.
U. Cherubini, S. Mulinacci (2012). A Model for Estimating the Liquidity Valuation Adjustment on OTC Derivatives. LONDON : Risk Books.
A Model for Estimating the Liquidity Valuation Adjustment on OTC Derivatives
CHERUBINI, UMBERTO;MULINACCI, SABRINA
2012
Abstract
The paper proposes a methodology to compute the valuation adjustment that an intermediary would charge to a customer for an Over-The-Counter (OTC) derivative contract. The adjustment accounts for the market liquidity of the undelying asset of the contract. A binomial example illustrates how to determine the fee of an OTC contract based on information on the market slippage (the net supply curve of the underlying), the risk aversion of the customer and his liquidity constraint.File in questo prodotto:
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