Bilateral credit valuation adjustment for large credit derivatives portfolios
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Publication:468421
DOI10.1007/S00780-013-0217-4zbMATH Open1306.91145arXiv1305.5575OpenAlexW3123791899MaRDI QIDQ468421FDOQ468421
Authors: Agostino Capponi, Lijun Bo 
Publication date: 7 November 2014
Published in: Finance and Stochastics (Search for Journal in Brave)
Abstract: We obtain an explicit formula for the bilateral counterparty valuation adjustment of a credit default swaps portfolio referencing an asymptotically large number of entities. We perform the analysis under a doubly stochastic intensity framework, allowing for default correlation through a common jump process. The key insight behind our approach is an explicit characterization of the portfolio exposure as the weak limit of measure-valued processes associated to survival indicators of portfolio names. We validate our theoretical predictions by means of a numerical analysis, showing that counterparty adjustments are highly sensitive to portfolio credit risk volatility as well as to default correlation.
Full work available at URL: https://arxiv.org/abs/1305.5575
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Derivative securities (option pricing, hedging, etc.) (91G20) Credit risk (91G40) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10)
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Cited In (19)
- The pricing of basket options: a weak convergence approach
- Funding, repo and credit inclusive valuation as modified option pricing
- A Dynamic Network Model of Interbank Lending—Systemic Risk and Liquidity Provisioning
- Arbitrage-free valuation of bilateral counterparty risk for interest-rate products: impact of volatilities and correlations
- Markov chain approximation and measure change for time-inhomogeneous stochastic processes
- Network Effects in Default Clustering for Large Systems
- Short Communication: Dynamic Default Contagion in Heterogeneous Interbank Systems
- Dynamic analysis of counterparty exposures and netting efficiency of central counterparty clearing
- The valuation of multi-counterparties CDS with credit rating migration
- Pricing derivatives with counterparty risk and collateralization: a fixed point approach
- Valuation of kth-to-default credit-linked notes with counterparty risk in a reduced-form model
- Calculation of credit valuation adjustment based on least square Monte Carlo methods
- Systemic Risk and Default Clustering for Large Financial Systems
- Bilateral Credit Valuation Adjustment of CDS Under Systemic and Correlated Idiosyncratic Risks
- Impact of Multiple-Curve Dynamics in Credit Valuation Adjustments
- Dynamic contagion in a banking system with births and defaults
- Systemic Risk in Interbanking Networks
- Impact of multiple curve dynamics in credit valuation adjustments under collateralization
- xVA: DEFINITION, EVALUATION AND RISK MANAGEMENT
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