Pricing Credit Default Swap Subject To Counterparty Risk And Collateralization
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Pricing Credit Default Swap Subject to Counterparty Risk and Collateralization
Author | : Alan White |
Publisher | : GRIN Verlag |
Total Pages | : 31 |
Release | : 2018-03-26 |
Genre | : Business & Economics |
ISBN | : 3668668477 |
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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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