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The Valuation of Credit Default Swap with Counterparty Risk and Collateralization
- Author(s):
- Tim Xiao (see profile)
- Date:
- 2020
- Group(s):
- Business Management
- Subject(s):
- Economics
- Item Type:
- Article
- Tag(s):
- valuation model; credit risk modeling; collateralization; correlation, CDS.
- Permanent URL:
- http://dx.doi.org/10.17613/f40c-e902
- Abstract:
- 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.
- Notes:
- Additional material: https://figshare.com/articles/The_Valuation_of_Credit_Default_Swap_with_Counterparty_Risk_and_Collateralization/12497342/files/23184398.pdf
- Metadata:
- xml
- Status:
- Published
- Last Updated:
- 3 years ago
- License:
- All-Rights-Granted
- Share this:
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