Pricing Credit Default Swaps Under Default Correlations and Counterparty Risk

Li Chen and Damir Filipovic
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Damir Filipovic: Princeton University

Finance from EconWPA

Abstract: In 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.

Keywords: affine models; credit default swaps; credit risk; counterparty risk (search for similar items in EconPapers)
JEL-codes: C39 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-rmg
Date: Written 2003-03-31
Note: Type of Document - pdf; prepared on IBM PC - PC-TEX/UNIX Sparc TeX; to print on HP/PostScript/Franciscan monk; pages: 22 ; figures: none. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.
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