• Corpus ID: 6577041

Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board , Washington , D . C . Derivatives Pricing under Bilateral Counterparty Risk

  title={Finance and Economics Discussion Series Divisions of Research \& Statistics and Monetary Affairs Federal Reserve Board , Washington , D . C . Derivatives Pricing under Bilateral Counterparty Risk},
  author={Peter Carr and Samim Ghamami},
We consider risk-neutral valuation of a contingent claim under bilateral counterparty risk in a reduced-form setting similar to that of Duffie and Huang [1996] and Duffie and Singleton [1999]. The probabilistic valuation formulas derived under this framework cannot be usually used for practical pricing due to their recursive path-dependencies. Instead, finite-difference methods are used to solve the quasi-linear partial differential equations that equivalently represent the claim value function… 


Changes of numéraire, changes of probability measure and option pricing
The use of the risk-neutral probability measure has proved to be very powerful for computing the prices of contingent claims in the context of complete markets, or the prices of redundant securities
Empirical Dynamic Asset Pricing: Model Specification and Econometric Assessment
Written by one of the leading experts in the field, this book focuses on the interplay between model specification, data collection, and econometric testing of dynamic asset pricing models. The first
Premia for Correlated Default Risk
Using data on corporate default experience in the U.S. and market rates of CDX index and tranche swaps of various maturities, we estimate reduced-form models of correlated default timing in the CDX
CVA and Wrong-Way Risk
The authors propose a simple model for incorporating wrong-way and right-way risk into the Monte Carlo simulation that is used to calculate credit value adjustment (CVA). The model assumes a
Computational Techniques for basic Affine Models of Portfolio Credit Risk
This paper presents computational techniques that make a certain class of fully dynamic intensity-based models for portfolio credit risk, along the lines of Duffie and Garleanu (2001) and Mortensen
Stochastic Intensity Models of Wrong Way Risk : Wrong Way CVA Need Not Exceed Independent CVA
A financial institution’s counterparty credit exposures may be correlated with the credit quality of a counterparty; wrong way risk refers to the case where this correlation is negative. Hull and
Credit Risk Modeling: Theory and Applications
The author considers the two broad approaches to credit risk analysis: that based on classical option pricing models on the one hand, and on a direct modeling of the default probability of issuers on the other and demonstrates that the distinction between the two approaches is not at all clear-cut.
Credit Risk: Modeling, Valuation And Hedging
The main objective of Credit Risk: Modeling, Valuation and Hedging is to present a comprehensive survey of the past developments in the area of credit risk research, as well as to put forth the most
Swap Rates and Credit Quality
This article presents a model for valuing claims subject to default by both contracting parties, such as swaps and forwards. With counterparties of different default risk, the promised cash flows of
Risk Premia in Structured Credit Derivatives
During the past couple of years much research effort has been devoted to explaining the spread of corporate bonds over Treasuries. On the other hand, relatively little is known about the spread