Pricing commodity-linked bonds with stochastic convenience yield, interest rate and counterparty credit risk: application of Mellin transform methods

2021 ◽  
Author(s):  
Zonggang Ma ◽  
Chaoqun Ma ◽  
Zhijian Wu
Keyword(s):  
Interest Rate ◽  
Credit Risk ◽  
Mellin Transform ◽  
Convenience Yield ◽  
Transform Methods ◽  
Counterparty Credit Risk ◽  
Stochastic Convenience Yield

scholarly journals Modelling Counterparty Credit Risk in Czech Interest Rate Swaps

2017 ◽  
Vol 65 (3) ◽  
pp. 1015-1022
Author(s):  
Lenka Křivánková ◽  
Silvie Zlatošová
Keyword(s):  
Interest Rate ◽  
Credit Risk ◽  
Term Structure ◽  
Factor Model ◽  
Capital Requirements ◽  
Data Set ◽  
Safe Level ◽  
Interest Rate Swaps ◽  
Counterparty Credit Risk ◽  
Interest Rate Term Structure

According to the Basel Committee’s estimate, three quarters of counterparty credit risk losses during the financial crisis in 2008 originate from credit valuation adjustment’s losses and not from actual defaults. Therefore, from 2015, the Third Basel Accord (EU, 2013a) and (EU, 2013b) instructed banks to calculate the capital requirement for the risk of credit valuation adjustment (CVA). Banks are trying to model CVA to hold the prescribed standards and also reach the lowest possible impact on their profit. In this paper, we try to model CVA using methods that are in compliance with the prescribed standards and also achieve the smallest possible impact on the bank’s earnings. To do so, a data set of interest rate swaps from 2015 is used. The interest rate term structure is simulated using the Hull-White one-factor model and Monte Carlo methods. Then, the probability of default for each counterparty is constructed. A safe level of CVA is reached in spite of the calculated the CVA achieving a lower level than CVA previously used by the bank. This allows a reduction of capital requirements for banks.

Interest Rate Shocks and Credit Risk

2009 ◽  
Author(s):  
Carlos González-Aguado ◽  
Javier Suarez
Keyword(s):  
Interest Rate ◽  
Credit Risk ◽  
Interest Rate Shocks

Pricing Asian Options with Stochastic Convenience Yield and Jumps

2020 ◽  
Author(s):  
Christian-Oliver Ewald ◽  
Yuexiang Wu ◽  
Aihua Zhang
Keyword(s):  
Asian Options ◽  
Convenience Yield ◽  
Stochastic Convenience Yield
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