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Evaluation of counterparty risk for derivatives with early-exercise features

Michèle Breton and Oussama Marzouk

Journal of Economic Dynamics and Control, 2018, vol. 88, issue C, 1-20

Abstract: We introduce an efficient numerical approach to evaluate counterparty risk and we compute the Credit Valuation Adjustment for derivatives having early-exercise features. The approach is flexible and can account for wrong-way risk and various models for the underlying risk factor’s dynamics. Numerical experiments are presented to illustrate the efficiency and versatility of the method.

Keywords: Finance; Credit risk; Credit valuation adjustment; Dynamic programming; Computational method (search for similar items in EconPapers)
JEL-codes: C61 C63 G12 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:88:y:2018:i:c:p:1-20

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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