Bilateral credit valuation adjustment for large credit derivatives portfolios

Lijun Bo and Agostino Capponi ()

Finance and Stochastics, 2014, vol. 18, issue 2, 482 pages

Abstract: We obtain an explicit formula for the bilateral counterparty valuation adjustment of a credit default swaps portfolio referencing an asymptotically large number of entities. We perform the analysis under a doubly stochastic intensity framework, allowing default correlation through a common jump process. The key insight behind our approach is an explicit characterization of the portfolio exposure as the weak limit of measure-valued processes associated with survival indicators of portfolio names. We validate our theoretical predictions by means of a numerical analysis, showing that counterparty adjustments are highly sensitive to portfolio credit risk volatility as well as to the intensity of the common jump process. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Credit valuation adjustment; Weak convergence; Doubly stochastic processes; Credit default swaps; 91G40; G13 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00780-013-0217-4 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Bilateral Credit Valuation Adjustment for Large Credit Derivatives Portfolios (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:finsto:v:18:y:2014:i:2:p:431-482

Ordering information: This journal article can be ordered from
http://www.springer. ... ance/journal/780/PS2

DOI: 10.1007/s00780-013-0217-4

Access Statistics for this article

Finance and Stochastics is currently edited by M. Schweizer

More articles in Finance and Stochastics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().