Key facts
- A unified representation of derivative pricing adjustments has been developed.
- The representation allows for adjustments between any two derivative pricing functions.
- The work aims to quantify and mitigate XVA model risk.
A new, unified representation of derivative pricing adjustments has been introduced, consolidating and extending previous research in the field. Developed by Benedict Burnett, Ryan McCrickerd, and Benjamin Piau, this fundamental representation aims to provide a single framework for understanding the adjustments between any two derivative pricing functions. The authors propose that this approach can be utilized to quantify and mitigate XVA (eXplainable AI) model risk, offering a novel methodology for financial risk management.