2012/07/25 by Alexander Lipton, Lipton, Alexander, Ioana Savescu +1 · 2 citations
Computer Science · Economics, Econometrics and Finance · Mathematics · #Actuarial science #Advanced Mathematical Modeling in Engineering #Business #Counterparty #Credit Risk and Financial Regulations #Credit default swap #Credit default swap index #Credit derivative #Credit reference #Credit risk #Credit valuation adjustment #Econometrics #Economics #FOS: Economics and business #Financial economics #Mathematics #Pricing of Securities (q-fin.PR) #Statistics #Stochastic processes and financial applications #Value (mathematics) #iTraxx #q-fin.PR
paper · pdf · doi:10.48550/arxiv.1207.6049
published in arXiv (Cornell University) (Cornell University) · 49 pages, 31 figures. arXiv admin note: substantial text overlap with arXiv:1206.3104
arxiv created 2012/07/25 · openalex publication_date 2012/07/25 · arxiv updated 2012/07/26 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/08
A three-dimensional extension of the structural default model with firms' values driven by correlated diffusion processes is presented. Green's function based semi-analytical methods for solving the forward calibration problem and backward pricing problem are developed. These methods are used to analyze bilateral counterparty risk for credit default swaps and evaluate the corresponding credit and debt value adjustments. It is shown that in many realistic cases these value adjustments can be surprisingly large.