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Pricing Credit Default Swap Subject to Counterparty Risk and Collateralization

Pricing Credit Default Swap Subject to Counterparty Risk and Collateralization

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Marketing

ISBN10: 3668668485
ISBN13: 9783668668485
Publisher: Grin Verlag
Published: Mar 27 2018
Pages: 32
Weight: 0.12
Height: 0.08 Width: 5.83 Depth: 8.27
Language: English
Research Paper (undergraduate) from the year 2018 in the subject Business economics - Investment and Finance, grade: 10, language: English, 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.

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