 SummaryDonald J Smith Chapter 8 in Valuation in a World of CVA, DVA, and FVA:A Tutorial on Debt Securities and Interest Rate Derivatives, 2017, pp 183-188 from World Scientific Publishing Co. Pte. Ltd. Abstract: This introduction to the valuation of debt securities and interest rate derivatives is an attempt to characterize the workings of the complex models used in practice by means of a simple, “artisanal” model of interest rate dynamics to obtain a value assuming no default and a separate, tabular calculation for the adjustments due to credit risk and funding costs. A novel aspect to the presentation is a link between the values in the binomial forward rate tree and the expected exposure to credit risk. While it is a caricature of its real-world counterparts, the binomial model of benchmark rates and CVA/DVA/FVA tables reveal some of the key assumptions that need to be made in the valuation process — for instance, the underlying stochastic process for the level and volatility of interest rates, collateralization, the probability of default, and the recovery rate if default occurs… Keywords: XVA; CVA; DVA; FVA; Debt Securities; Interest Rate Derivatives (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789813222755_0008 Ordering information: This item can be ordered from Access Statistics for this chapter More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd. |
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