MVA: Future IM for client trades and dynamic hedges

New client trades affect banks’ hedging portfolios. This may impact the initial margin (IM) posted to client counterparties and to hedge counterparties. Alexandre Antonov, Serguei Issakov and Andy McClelland propose that IM for both sides should be forecast and reflected in MVA.

Forecasting IM for dynamic hedges of non-vanillas is complicated by the need for future hedge ratios. These can be recovered by combining the future sensitivities used in client-side IM with appropriate Jacobians.


Alexandre Antonov, Ph.D., Chief Analyst at Danske Bank

A 20 year Numerix veteran, Dr. Antonov is a Chief Analyst at Danske Bank in Copenhagen. Dr. Antonov received his PhD degree from the Landau Institute for Theoretical Physics in 1997 and joined Numerix in 1998, where he worked as a Senior Vice President of Quantitative Research. His activity is concentrated on modeling and numerical methods for interest rates, cross currency, hybrid, credit and CVA and FVA. Dr. Antonov is a published author for multiple publications in mathematical finance, including Risk magazine and a frequent speaker at financial conferences. He was named Risk Magazine's 2016 Quant of the Year. Most recently he served as a Director at Standard Chartered in London.

Andrew McClelland, Ph.D., Director, Quantitative Research, Numerix

Andrew McClelland's work at Numerix focuses on counterparty credit risk issues including valuation adjustments and counterparty exposure production for structured products. He also works on numerical methods for efficient production of risk profiles under real-world measures.

Dr. McClelland received his Ph.D. in finance at the Queensland University of Technology in financial econometrics. His research involved markets exhibiting crash feedback, option pricing, and parameter estimation using particle filtering methods. His work has been published in the Journal of Banking and Finance, the Journal of Econometrics, and the Journal of Business and Economic Statistics.

Serguei Issakov, Ph.D., Global Head of Quantitative Research & Senior Vice President, Quantitative Research Group, Numerix

Dr. Issakov, as Global Head of Quantitative Research, oversees the company’s quantitative research globally, including the research of pricing models at Numerix. Since joining Numerix in 1999, his earlier roles at Numerix included Vice President of Financial Applications, Head of Engine Development (the forerunner to Numerix 7) and Head of Risk Analytics.

Dr. Issakov has published over 40 papers in mathematics and theoretical physics. He is a co-author of the Issakov-Ouvry-Wu equations in fundamental quantum statistical mechanics. He has received numerous fellowships and research grants, including a NATO Visiting Professorship and grants from the Russian Foundation for Basic Research. He holds PhD in Theoretical and Mathematical Physics from Moscow Institute of Physics and Technology, from the Theory Group led by Physics Nobel Laureate Vitaly Ginzburg.



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MVA: How to Forecast Initial Margin w/ Andy McClelland