publication . Article . 2005

Credit Default Swap Valuation with Counterparty Risk

Leung, Seng Yuen; Yue Kuen Kwok;
Open Access English
  • Published: 01 Jan 2005 Journal: The Kyoto Economic Review, volume 74, issue 1, pages 25-45 (issn: 1349-6778, Copyright policy)
  • Publisher: Graduate School of Economics, Kyoto University
Abstract
Using the reduced form framework with inter-dependent default correlation, we perform valuation of credit default swap with counterparty risk. The inter-dependent default risk structure between the protection buyer, protection seller and the reference entity in a credit default swap are characterized by their correlated default intensities, where the default intensity of one party increases when the default of another party occurs. We explore how settlement risk and replacement cost affect the swap rate in credit default swaps.
Subjects
free text keywords: Counterparty risk, contagious defaults, intensity model, credit default swap
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publication . Article . 2005

Credit Default Swap Valuation with Counterparty Risk

Leung, Seng Yuen; Yue Kuen Kwok;