During the COVID-19 pandemic, many institutions have announced that their counterparties are struggling to fulfill contracts. Therefore, it is necessary to consider the counterparty default risk when pricing options. After the 2008 financial crisis, a variety of value adjustments have been emphasized in the financial industry. The total value adjustment (XVA) is the sum of multiple value adjustments, which is also investigated in many stochastic models, such as the Heston [B. Salvador and C. W. Oosterlee, Appl. Math. Comput. 391, 125489 (2020)] and Bates [L. Goudenège et al., Comput. Manag. Sci. 17, 163–178 (2020)] models. In this work, a widely used pure jump Lévy process, the Carr–Geman–Madan–Yor process has been considered for pricing a Bermudan option with various value adjustments. Under a pure jump Lévy process, the value of derivatives satisfies a fractional partial differential equation (FPDE). Therefore, we construct a method that combines Monte Carlo with a finite difference of FPDE to find the numerical approximation of exposure and compare it with the benchmark Monte Carlo simulation and Fourier-cosine series method. We use the discrete energy estimate method, which is different from the existing works, to derive the convergence of the numerical scheme. Based on the numerical results, the XVA is computed by the financial exposure of the derivative value.

Counterparty credit risk (CCR) is a significant risk factor that financial institutions have to consider in today’s context, and the COVID-19 pandemic and military conflicts worldwide have heightened concerns about potential default risk. In this work, we investigate the changes in the value of financial derivatives due to counterparty default risk, i.e., total value adjustment (XVA). We perform the XVA for multi-asset option based on the multivariate Carr–Geman–Madan–Yor (CGMY) processes, which can be applied to a wider range of financial derivatives, such as basket options, rainbow options, and index options. For the numerical methods, we use the Monte Carlo method in combination with the alternating direction implicit method (MC-ADI) and the two-dimensional Fourier cosine expansion method (MC-CC) to find the risk exposure and make value adjustments for multi-asset derivatives.