Feynman Kac for Functional Jump Diffusions with an Application to Credit Value Adjustment

Abstract

We provide a proof for the functional Feynman–Kac theorem for jump diffusions with path-dependent coefficients and apply our results to the problem of Credit Value Adjustment (CVA) in a bilateral counterparty risk framework. We derive the corresponding functional CVA-PIDE and extend existing results on CVA to a setting which enables the pricing of path-dependent derivatives.