This was part of Dynamic Assessment Indices

Learning from defaults

Stephane Crepey, Université de Paris
Monday, May 9, 2022

Abstract: In this presentation we will show how pathwise XVA metrics and the embedded conditional risk measures (value at risks and expected shortfalls  used for assessing dynamic initial margins and economic capital) can be learnt by training neural net parameterizations to simulated labels. The challenge posed by the hybrid nature of the features, which includes both diffusive (market risk) and discrete (default) components, is addressed by a hierarchical simulation technique, whereby an optimized number of default paths is simulated given each market path.  The  regression error of the schemes can be assessed by an a posteriori  Monte Carlo procedure. Based on joint work with Bouazza Saadeddine and Lokman Abbas-Turki (mainly).