Advanced Search
MyIDEAS: Login

Derivative Pricing under Asymmetric and Imperfect Collateralization and CVA

Contents:

Author Info

  • Masaaki Fujii
  • Akihiko Takahashi
Registered author(s):

    Abstract

    The importance of collateralization through the change of funding cost is now well recognized among practitioners. In this article, we have extended the previous studies of collateralized derivative pricing to more generic situation, that is asymmetric and imperfect collateralization with the associated counter party credit risk. By introducing the collateral coverage ratio, our framework can handle these issues in an unified manner. Although the resultant pricing formula becomes non-linear FBSDE and cannot be solve exactly, the fist order approximation is provided using Gateaux derivative. We have shown that it allows us to decompose the price of generic contract into three parts: market benchmark, bilateral credit value adjustment (CVA), and the collateral cost adjustment (CCA) independent from the credit risk. We have studied each term closely, and demonstrated the significant impact of asymmetric collateralization through CCA using the numerical examples.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://arxiv.org/pdf/1101.5849
    File Function: Latest version
    Download Restriction: no

    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1101.5849.

    as in new window
    Length:
    Date of creation: Jan 2011
    Date of revision: Dec 2011
    Handle: RePEc:arx:papers:1101.5849

    Contact details of provider:
    Web page: http://arxiv.org/

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:arx:papers:1101.5849. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.