scholarly journals Credit Default Swap Calibration and Counterparty Risk Valuation with a Scenario based First Passage Model

2005 ◽  
Author(s):  
Damiano Brigo ◽  
Marco Tarenghi
Keyword(s):  
Credit Default Swap ◽  
Counterparty Risk ◽  
First Passage ◽  
Risk Valuation ◽  
Credit Default ◽  
Default Swap

BILATERAL COUNTERPARTY RISK VALUATION OF CDS CONTRACTS WITH SIMULTANEOUS DEFAULTS

2013 ◽  
Vol 16 (07) ◽  
pp. 1350040 ◽  
Author(s):  
LONG TENG ◽  
MATTHIAS EHRHARDT ◽  
MICHAEL GÜNTHER
Keyword(s):  
Credit Default Swap ◽  
Copula Model ◽  
Counterparty Risk ◽  
Risk Valuation ◽  
Credit Default ◽  
Lehman Brothers ◽  
Risk Neutral ◽  
Royal Dutch Shell ◽  
Default Swap ◽  
Crisis Situations

We analyze the general risk-neutral valuation for counterparty risk embedded in a Credit Default Swap (CDS) contract by adapting the recent findings of Brigo and Capponi (2009) to allow for simultaneous defaults among the two parties and the underlying reference credit, while the counterparty risk is considered bilaterally. For the default intensities, we employ a Markov copula model allowing for the possibility of a simultaneous default. The dependence between defaults of three names in a CDS contract and the wrong-way risk will thus be represented by the possibility of simultaneous defaults. We investigate numerically the effect of considering simultaneous defaults on the counterparty risk valuation of a CDS contract. Finally, we study a CDS contract between Royal Dutch Shell and British Airways based on Lehman Brothers applying this methodology, illustrating the bilateral adjustments with the possibility of simultaneous defaults in concrete crisis situations.

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.

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.

scholarly journals The Valuation of Credit Default Swap with Counterparty Risk and Collateralization

2019 ◽  
Author(s):  
Tim Xiao
Keyword(s):  
Asset Pricing ◽  
Financial Markets ◽  
Default Risk ◽  
Credit Default Swap ◽  
Counterparty Risk ◽  
New Model ◽  
Credit Risks ◽  
Credit Default ◽  
Default Swap ◽  
Default Dependency

This article presents a new model for valuing a credit default swap (CDS) contract that is affected by multiple credit risks 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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