The Valuation of Financial Derivatives Subject to Counterparty Risk and Credit Value Adjustment

Tim Xiao

No ep9dn, arabixiv.org from Center for Open Science

Abstract: This article presents a generic model for pricing financial derivatives subject to counterparty credit risk. Both unilateral and bilateral types of credit risks are considered. Our study shows that credit risk should be modeled as American style options in most cases, which require a backward induction valuation. To correct a common mistake in the literature, we emphasize that the market value of a defaultable derivative is actually a risky value rather than a risk-free value. Credit value adjustment (CVA) is also elaborated. A practical framework is developed for pricing defaultable derivatives and calculating their CVAs at a portfolio level.

Date: 2020-06-05
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://osf.io/download/5ed95db38b5426000c8b27fc/

Related works:
Working Paper: The Valuation of Financial Derivatives Subject to Counterparty Risk and Credit Value Adjustment (2020)
Working Paper: The Valuation of Financial Derivatives Subject to Counterparty Risk and Credit Value Adjustment (2019)
Working Paper: The Valuation of Financial Derivatives Subject to Counterparty Risk and Credit Value Adjustment (2019)
Working Paper: The Valuation of Financial Derivatives Subject to Counterparty Risk and Credit Value Adjustment (2018)
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:osf:arabix:ep9dn

DOI: 10.31219/osf.io/ep9dn

Access Statistics for this paper

More papers in arabixiv.org from Center for Open Science
Bibliographic data for series maintained by OSF ().