• 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
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