The Valuation of Credit Default Swap with Counterparty Risk and Collateralization

Tim Xiao

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

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.

Keywords: valuation model; credit risk modeling; collateralization; correlation; CDS (search for similar items in EconPapers)
Date: 2018
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https://www.econstor.eu/bitstream/10419/203447/1/p ... ultable%20cds-12.pdf (application/pdf)

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)
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:zbw:esprep:203447

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