Pré-Publication, Document De Travail Année : 2019

The Valuation of Credit Default Swap with Counterparty Risk and Collateralization

Tim Xiao
  • Fonction : Auteur

Résumé

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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hal-02174170 , version 1 (05-07-2019)

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  • HAL Id : hal-02174170 , version 1

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Tim Xiao. The Valuation of Credit Default Swap with Counterparty Risk and Collateralization. 2019. ⟨hal-02174170⟩
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