Pricing Credit Default Swaps Under Default Correlations and Counterparty Risk
AbstractIn this paper, we develop a generalized affine model to characterize correlated credit risk of multi-firms. When valuing credit derivatives, this new approach allows to incorporate correlative market and credit risk, interdependent default risk structure and counterparty risk into consideration. We have demonstrated our affine model not only combines the existing structural models and intensity based models, but also produces explicit formulas for the prices of credit default swaps and other credit derivatives.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0303009.
Length: 22 pages
Date of creation: 31 Mar 2003
Date of revision:
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affine models; credit default swaps; credit risk; counterparty risk;
Find related papers by JEL classification:
- C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-04-09 (All new papers)
- NEP-FMK-2003-04-09 (Financial Markets)
- NEP-RMG-2003-04-09 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert A. Jarrow, 2009. "Credit Risk Models," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 37-68, November.
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- Robert A. Jarrow, 2001. "Counterparty Risk and the Pricing of Defaultable Securities," Journal of Finance, American Finance Association, vol. 56(5), pages 1765-1799, October.
- Li Chen & Damir Filipovic, 2003. "A Simple Model for Credit Migration and Spread Curves," Finance 0305003, EconWPA.
- Alexander Lipton & Ioana Savescu, 2012. "Pricing credit default swaps with bilateral value adjustments," Papers 1207.6049, arXiv.org.
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