Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization

Tim Xiao

No 86xhw, arabixiv.org from Center for Open Science

Abstract: 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.

Date: 2019-11-01
New Economics Papers: this item is included in nep-rmg
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https://osf.io/download/5dc9945ba1cd9e000d75cea6/

Related works:
Working Paper: Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization (2019)
Working Paper: Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization (2019)
Working Paper: Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization (2019)
Working Paper: Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization (2019)
Working Paper: Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:osf:arabix:86xhw

DOI: 10.31219/osf.io/86xhw

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