The Valuation of Credit Default Swap with Counterparty Risk and Collateralization

Tim Xiao

No 3pzyv, SocArXiv from Center for Open Science

Abstract: This article presents a new model for valuing a credit default swap (CDS) contract that is affected by multiple credit risks 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: 2019-05-01
New Economics Papers: this item is included in nep-rmg
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https://osf.io/download/5de27ffcfbde3600099665d0/

Related works:
Working Paper: The Valuation of Credit Default Swap with Counterparty Risk and Collateralization (2019)
Working Paper: The Valuation of Credit Default Swap with Counterparty Risk and Collateralization (2019)
Working Paper: The Valuation of Credit Default Swap with Counterparty Risk and Collateralization (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:3pzyv

DOI: 10.31219/osf.io/3pzyv

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