Swap Rates and Credit Quality We Are Grateful for Discussions with Ken Singleton and Comments From
نویسنده
چکیده
The impact of credit quality on swap rates is determined under alternative netting assumptions. With counterparties of di erent default risk, swap valuation is non-linear in the underlying promised exchange of cash ows. The impact of credit risk asymmetry and of netting is presented through both theory and numerical examples, which include interest rate and currency swaps. Please address all correspondence to: Darrell Du e, Graduate School of Business, Stanford University, Stanford CA 94305-5015. We are grateful for discussions with Ken Singleton and comments from John Hull, Francis Longsta , and Ashok Varadhan.
منابع مشابه
Analytical value-at-risk with jumps and credit risk
This paper provides an analytical method for computing value at risk, and other risk measures, for portfolios that may include options and other derivatives, with defaultable counterparties or borrowers. The risk setting is that of a classical multi-factor jump-di usion for default intensities and asset returns, under which between-jump returns are correlated Brownian motions, with return jumps...
متن کاملComparing Prediction Power of Artificial Neural Networks Compound Models in Predicting Credit Default Swap Prices through Black–Scholes–Merton Model
Default risk is one of the most important types of risks, and credit default swap (CDS) is one of the most effective financial instruments to cover such risks. The lack of these instruments may reduce investment attraction, particularly for international investors, and impose potential losses on the economy of the countries lacking such financial instruments, among them, Iran. After the 2007 fi...
متن کاملCandidate Market Models and the Calibrated CIR + + Stochastic Intensity Model for Credit Default Swap Options and Callable Floaters ∗
We consider the standard Credit Default Swap (CDS) payoff and some alternative approximated versions, stemming from different conventions on the premium and protection legs. We consider standard running CDS (RCDS), upfront CDS and postponed-payments running CDS (PRCDS). Each different definition implies a different definition of forward CDS rate, which we consider with some detail. We introduce...
متن کاملCounterparty Credit Risk Modeling: Risk Management, Pricing and Regulation
* Marco Tarenghi contributed to the numerical part on the Equity Return Swap example. We are grateful to Aurelien Alfonsi, Eymen Errais and Massimo Morini for comments and suggestions. Umberto Cherubini helped us with references and further suggestions.
متن کاملAn Application of Genetic Network Programming Model for Pricing of Basket Default Swaps (BDS)
The credit derivatives market has experienced remarkable growth over the past decade. As such, there is a growing interest in tools for pricing of the most prominent credit derivative, the credit default swap (CDS). In this paper, we propose a heuristic algorithm for pricing of basket default swaps (BDS). For this purpose, genetic network programming (GNP), which is one of the recent evolutiona...
متن کامل