Central bank lending to commercial banks is typically collateralized which reduces central bank’s credit risk exposure to “double default events” when the counterparty and the issuer of the underlying collateral asset both default in a short period of time. This paper presents a simple...

This paper presents a new, intuitive but mathematically powerful model of dependent defaults and derives a general framework for pricing products whose values depend on credit correlation between the counterparty and the reference entity. The dependence framework is a natural extension of the...