Credit Derivative Evaluation and CVA Under the Benchmark Approach

Baldeaux, J; Platen, E

Credit Derivative Evaluation and CVA Under the Benchmark Approach

Baldeaux, J Platen, E

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Publication Type:: Journal Article
Citation:: Asia-Pacific Financial Markets, 2015, 22 (3), pp. 305 - 331
Issue Date:: 2015-09-07

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Field	Value	Language
dc.contributor.author	Baldeaux, J	en_US
dc.contributor.author	Platen, E https://orcid.org/0000-0003-4595-3123	en_US
dc.date.issued	2015-09-07	en_US
dc.identifier.citation	Asia-Pacific Financial Markets, 2015, 22 (3), pp. 305 - 331	en_US
dc.identifier.issn	1387-2834	en_US
dc.identifier.uri	http://hdl.handle.net/10453/37603
dc.description.abstract	© 2015, Springer Japan. In this paper, we discuss how to model credit risk under the benchmark approach. Firstly we introduce an affine credit risk model. We then show how to price credit default swaps (CDSs) and introduce credit valuation adjustment (CVA) as an extension of CDSs. In particular, our model can capture right-way—and wrong-way exposure. This means, we capture the dependence structure of the default event and the value of the transaction under consideration. For simple contracts, we provide closed-form solutions. However, due to the fact that we allow for a dependence between the default event and the value of the transaction, closed-form solutions are difficult to obtain in general. Hence we conclude this paper with a reduced form model, which is more tractable.	en_US
dc.relation.ispartof	Asia-Pacific Financial Markets	en_US
dc.relation.isbasedon	10.1007/s10690-015-9204-4	en_US
dc.subject.classification	Finance	en_US
dc.title	Credit Derivative Evaluation and CVA Under the Benchmark Approach	en_US
dc.type	Journal Article
utslib.citation.volume	3	en_US
utslib.citation.volume	22	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Science
pubs.organisational-group	/University of Technology Sydney/Faculty of Science/School of Mathematical and Physical Sciences
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	open_access
pubs.issue	3	en_US
pubs.publication-status	Published	en_US
pubs.volume	22	en_US

Abstract:

© 2015, Springer Japan. In this paper, we discuss how to model credit risk under the benchmark approach. Firstly we introduce an affine credit risk model. We then show how to price credit default swaps (CDSs) and introduce credit valuation adjustment (CVA) as an extension of CDSs. In particular, our model can capture right-way—and wrong-way exposure. This means, we capture the dependence structure of the default event and the value of the transaction under consideration. For simple contracts, we provide closed-form solutions. However, due to the fact that we allow for a dependence between the default event and the value of the transaction, closed-form solutions are difficult to obtain in general. Hence we conclude this paper with a reduced form model, which is more tractable.

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http://hdl.handle.net/10453/37603