scholarly journals Credit Risky Securities Valuation under a Contagion Model with Interacting Intensities

2011 ◽  
Vol 2011 ◽  
pp. 1-20 ◽  
Author(s):  
Anjiao Wang ◽  
Zhongxing Ye
Keyword(s):  
Continuous Time ◽  
Common Factors ◽  
Credit Default Swap ◽  
Counterparty Risk ◽  
Change Of Measure ◽  
Defaultable Bonds ◽  
Credit Default ◽  
Contagion Model ◽  
Default Swap ◽  
Rate Swap

We study a three-firm contagion model with counterparty risk and apply this model to price defaultable bonds and credit default swap (CDS). This model assumes that default intensities are driven by external common factors as well as other defaults in the system. Using the “total hazard” approach, default times can be generated and the joint density function is obtained. We represent the pricing method of defaultable bonds and obtain the closed-form pricing formulas. By the approach of “change of measure,” analytical solutions of CDS swap rate (swap premuim) are derived in the continuous time framework and the discrete time framework, respectively.

An Explicit, Multi-Factor Credit Default Swap Pricing Model with Correlated Factors

2008 ◽  
Vol 43 (1) ◽  
pp. 123-160 ◽  
Author(s):  
Ren-Raw Chen ◽  
Xiaolin Cheng ◽  
Frank J. Fabozzi ◽  
Bo Liu
Keyword(s):  
Goodness Of Fit ◽  
Credit Default Swap ◽  
Change Of Measure ◽  
Computationally Efficient ◽  
Period 2 ◽  
Credit Default ◽  
Risky Bonds ◽  
Default Swap ◽  
The Interest Rate ◽  
Correlated Factors

AbstractWith the recent significant growth in the single-name credit default swap (CDS) market has come the need for accurate and computationally efficient models to value these instruments. While the model developed by Duffie, Pan, and Singleton (2000) can be used, the solution is numerical (solving a series of ordinary differential equations) rather than explicit. In this paper, we provide an explicit solution to the valuation of a credit default swap when the interest rate and the hazard rate are correlated by using the “change of measure” approach and solving a bivariate Riccati equation. CDS transaction data for the period 2/15/2000 through 4/8/2003 for 60 firms are used to test both the goodness of fit of the model and provide estimates of the influence of economic variables in the market for credit-risky bonds.

scholarly journals Counterparty Risk and Counterparty Choice in the Credit Default Swap Market

2016 ◽  
Vol 2016 (087) ◽  
Author(s):  
Wenxin Du ◽  
◽  
Salil Gadgil ◽  
Michael B. Gordy ◽  
Clara Vega ◽  
...  
Keyword(s):  
Credit Default Swap ◽  
Counterparty Risk ◽  
Credit Default ◽  
Default Swap

scholarly journals Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization

2019 ◽  
Author(s):  
Tim Xiao
Keyword(s):  
Asset Pricing ◽  
Credit Risk ◽  
Financial Markets ◽  
Default Risk ◽  
Credit Default Swap ◽  
Financial Derivatives ◽  
Counterparty Risk ◽  
Financial Contracts ◽  
Credit Default ◽  
Default Swap

This article presents a new model for valuing financial contracts subject to credit risk and collateralization. Examples include the valuation of a credit default swap (CDS) contract that is affected by the trilateral credit risk of the buyer, seller and reference entity. We show that default dependency has a significant impact on asset pricing. In fact, correlated default risk is one of the most pervasive threats in financial markets. We also show that a fully collateralized CDS is not equivalent to a risk-free one. In other words, full collateralization cannot eliminate counterparty risk completely in the CDS market.

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