Counterparty risk valuation for CDS

2008/07/02 by Christophette Blanchet-Scalliet, Blanchet-Scalliet, Christophette, Frédéric Patras +1
Economics, Econometrics and Finance · Mathematics · #FOS: Economics and business #FOS: Mathematics #Pricing of Securities (q-fin.PR) #Probability (math.PR) #math.PR #q-fin.PR

paper · pdf · doi:10.48550/arxiv.0807.0309

arxiv created 2008/07/02 · arxiv updated 2009/12/01

Abstract

The valuation of counterparty risk for single name credit derivatives requires the computa- tion of joint distributions of default times of two default-prone entities. For a Merton-type model, we derive some formulas for these joint distribu- tions. As an application, closed formulas for counterparty risk on a CDS or for a first-to-default swap on two underlyings are obtained.

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