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The Valuation of Credit Default Swap with Counterparty Risk and Collateralization

Xiao, Tim - 2019

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...

Persistent link: https://www.econbiz.de/10012864846

The Impact of Default Dependency and Collateralization on Asset Pricing and Credit Risk Modeling

Xiao, Tim - 2015

This article presents a comprehensive framework for valuing financial instruments subject to credit risk and collateralization. In particular, we focus on the impact of default dependence on asset pricing, as correlated default risk is one of the most pervasive threats to financial markets. Some...

Persistent link: https://www.econbiz.de/10013035565

Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization

Xiao, Tim - 2019

This article presents a new model for valuing financial contracts subject to credit risk and collateralization. Examples include the valuation of a credit default swap (CDS) contract that is affected by the trilateral credit risk of the buyer, seller and reference entity. We show that default...

Persistent link: https://www.econbiz.de/10012867724

Asset encumbrance, bank funding and financial fragility

Ahnert, Toni; Anand, Kartik; Gai, Prasanna; Chapman, James - 2016

How does asset encumbrance affect the fragility of intermediaries subject to rollover risk? We offer a model in which a bank issues covered bonds backed by a pool of assets that is bankruptcy remote and replenished following losses. Encumbering assets allows a bank to raise cheap secured debt...

Persistent link: https://www.econbiz.de/10011486236

Contagion in Debt and Collateral Markets

Chang, Jin-Wook - 2022

This paper investigates contagion in financial networks through both debt and collateral markets. Payment from a … collateralized debt contract depends not only on the borrower's balance sheet but also on the price of the underlying collateral. I … show that the existence of the collateral channel of contagion amplifies the contagion from the counterparty channel, and …

Persistent link: https://www.econbiz.de/10013306873

Measures of aggregate credit conditions and their potential use by central banks

García, Alejandro; Prokopiw, Andrei - 2009

Understanding the nature of credit risk has important implications for financial stability. Since authorities notably, central banks focus on risks that have systemic implications, it is crucial to develop ways to measure these risks. The difficulty lies in finding reliable measures of aggregate...

Persistent link: https://www.econbiz.de/10003933233

Margin Procyclicality and the Collateral Cycle

Benos, Evangelos; Ferrara, Gerardo; Ranaldo, Angelo - 2022

Using supervisory data from UK central counterparties (CCPs), we study a collateral cycle in which market participants …

Persistent link: https://www.econbiz.de/10013290341

The Valuation of Financial Derivatives Subject to Counterparty Risk and Credit Value Adjustment

Xiao, Tim - 2019

This article presents a generic model for pricing financial derivatives subject to counterparty credit risk. Both unilateral and bilateral types of credit risks are considered. Our study shows that credit risk should be modeled as American style options in most cases, which require a backward...

Persistent link: https://www.econbiz.de/10012864519

Bilateral Defaultable Financial Derivatives Pricing and Credit Valuation Adjustment

Xiao, Tim - 2019

The one-side defaultable financial derivatives valuation problems have been studied extensively, but the valuation of bilateral derivatives with asymmetric credit qualities is still lacking convincing mechanism. This paper presents an analytical model for valuing derivatives subject to default...

Persistent link: https://www.econbiz.de/10012867489

Incremental Risk Charge Methodology

Xiao, Tim - 2014

The incremental risk charge (IRC) is a new regulatory requirement from the Basel Committee in response to the recent financial crisis. Notably few models for IRC have been developed in the literature. This paper proposes a methodology consisting of two Monte Carlo simulations. The first Monte...

Persistent link: https://www.econbiz.de/10013055237

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