Pricing Credit Default Swap Subject to Counterparty Risk and Collateralization

Pricing Credit Default Swap Subject to Counterparty Risk and Collateralization
Author :
Publisher : GRIN Verlag
Total Pages : 31
Release :
ISBN-10 : 9783668668478
ISBN-13 : 3668668477
Rating : 4/5 (477 Downloads)

Book Synopsis Pricing Credit Default Swap Subject to Counterparty Risk and Collateralization by : Alan White

Download or read book Pricing Credit Default Swap Subject to Counterparty Risk and Collateralization written by Alan White and published by GRIN Verlag. This book was released on 2018-03-26 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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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