scholarly journals The Valuation of Credit Default Swap with Counterparty Risk and Collateralization

2019 ◽  
Author(s):  
Tim Xiao
Keyword(s):  
Asset Pricing ◽  
Financial Markets ◽  
Default Risk ◽  
Credit Default Swap ◽  
Counterparty Risk ◽  
New Model ◽  
Credit Risks ◽  
Credit Default ◽  
Default Swap ◽  
Default Dependency

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.

scholarly journals The Valuation of Credit Default Swap with Counterparty Risk and Collateralization

2019 ◽  
Author(s):  
Tim Xiao
Keyword(s):  
Asset Pricing ◽  
Financial Markets ◽  
Default Risk ◽  
Credit Default Swap ◽  
Counterparty Risk ◽  
New Model ◽  
Credit Risks ◽  
Credit Default ◽  
Default Swap ◽  
Default Dependency

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.

scholarly journals The Valuation of Credit Default Swap with Counterparty Risk and Collateralization

2019 ◽  
Author(s):  
Tim Xiao
Keyword(s):  
Asset Pricing ◽  
Financial Markets ◽  
Default Risk ◽  
Credit Default Swap ◽  
Counterparty Risk ◽  
New Model ◽  
Credit Risks ◽  
Credit Default ◽  
Default Swap ◽  
Default Dependency

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.

scholarly journals The Valuation of Credit Default Swap with Counterparty Risk and Collateralization

2019 ◽  
Author(s):  
Tim Xiao
Keyword(s):  
Asset Pricing ◽  
Financial Markets ◽  
Default Risk ◽  
Credit Default Swap ◽  
Counterparty Risk ◽  
New Model ◽  
Credit Risks ◽  
Credit Default ◽  
Default Swap ◽  
Default Dependency

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.

scholarly journals Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization

2019 ◽  
Author(s):  
Tim Xiao
Keyword(s):  
Asset Pricing ◽  
Credit Risk ◽  
Financial Markets ◽  
Default Risk ◽  
Credit Default Swap ◽  
Financial Derivatives ◽  
Counterparty Risk ◽  
Financial Contracts ◽  
Credit Default ◽  
Default Swap

This article presents a new model for valuing financial contracts subject to credit risk and collateralization. Examples include the valuation of a credit default swap (CDS) contract that is affected by the trilateral credit risk 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.

scholarly journals Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization

2019 ◽  
Author(s):  
Tim Xiao
Keyword(s):  
Asset Pricing ◽  
Credit Risk ◽  
Financial Markets ◽  
Default Risk ◽  
Credit Default Swap ◽  
Financial Derivatives ◽  
Counterparty Risk ◽  
Financial Contracts ◽  
Credit Default ◽  
Default Swap

This article presents a new model for valuing financial contracts subject to credit risk and collateralization. Examples include the valuation of a credit default swap (CDS) contract that is affected by the trilateral credit risk 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.

scholarly journals Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization

2019 ◽  
Author(s):  
Tim Xiao
Keyword(s):  
Asset Pricing ◽  
Credit Risk ◽  
Financial Markets ◽  
Default Risk ◽  
Credit Default Swap ◽  
Financial Derivatives ◽  
Counterparty Risk ◽  
Financial Contracts ◽  
Credit Default ◽  
Default Swap

This article presents a new model for valuing financial contracts subject to credit risk and collateralization. Examples include the valuation of a credit default swap (CDS) contract that is affected by the trilateral credit risk 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.

scholarly journals Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization

2019 ◽  
Author(s):  
Tim Xiao
Keyword(s):  
Asset Pricing ◽  
Credit Risk ◽  
Financial Markets ◽  
Default Risk ◽  
Credit Default Swap ◽  
Financial Derivatives ◽  
Counterparty Risk ◽  
Financial Contracts ◽  
Credit Default ◽  
Default Swap

This article presents a new model for valuing financial contracts subject to credit risk and collateralization. Examples include the valuation of a credit default swap (CDS) contract that is affected by the trilateral credit risk 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.

scholarly journals What Drives the Commonality between Credit Default Swap Spread Changes?

2017 ◽  
Vol 52 (1) ◽  
pp. 243-275 ◽  
Author(s):  
Mike Anderson
Keyword(s):  
Default Risk ◽  
Market Price ◽  
Credit Default Swap ◽  
Counterparty Risk ◽  
Credit Default ◽  
Default Swap ◽  
Credit Default Swap Spread ◽  
Fundamental Values

This paper documents an increase in the comovement between credit default swap (CDS) spread changes during the 2007–2009 crisis and investigates the source of that increase. One possible explanation is that comovement increased because fundamental values became more correlated. However, I find that changes in fundamentals account for only 23% of the increase in covariance. The remaining increase is attributed to changes in liquidity and the market price of default risk. In contrast, counterparty risk played an insignificant role. Although both contributed, the increase in covariance was driven more by variation in exposures than factor variance–covariance.

scholarly journals Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market

2005 ◽  
Vol 60 (5) ◽  
pp. 2213-2253 ◽  
Author(s):  
FRANCIS A. LONGSTAFF ◽  
SANJAY MITHAL ◽  
ERIC NEIS
Keyword(s):  
Default Risk ◽  
Credit Default Swap ◽  
Yield Spreads ◽  
Credit Default ◽  
Default Swap ◽  
New Evidence
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