Unilateral CVA for CDS in a contagion model with stochastic pre-intensity and interest

Bao, Qunfang; Chen, Si; Li, Shenghong

doi:10.1016/j.econmod.2011.12.002

Cited by 11 publications

(4 citation statements)

References 6 publications

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“…Their empirical results show that the default of one company can influence the credit spreads of other companies. The significant impact of contagion on credit value is found in studies by Hatchett and Kühn (2009) and Bao et al. (2012).…”

Section: Resultsmentioning

confidence: 91%

Reduced-form models of correlated default timing: a systematic literature review

Nguyen

Zhou²

2022

JAL

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PurposeThis paper aims to provide an overview, a classification of existing research groups for correlated default models using a reduced-form method and an identification of future research opportunities in the field.Design/methodology/approachA systematic literature review is used for the identification, selection, evaluation and synthesis of relevant literature using keywords regarding the reduced-form default models in the Web of Science database. The authors also add articles from cross-referencing and expert recommendations to the literature. HistCite™ program is used to generate a citation map of the literature.FindingsThe results show that reduced-form correlated default risk models are developing towards modelling credit risk with both observable and unobservable variables. The frailty correlated default model at the firm level is still a potential research field.Originality/valueThis is the first paper systematically reviewing the research on reduced-form models of default timing.

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Section: Resultsmentioning

confidence: 91%

Reduced-form models of correlated default timing: a systematic literature review

Nguyen

Zhou²

2022

JAL

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“…At present, the research on the contagion model of credit risk in the financial market mainly includes the following three categories: the simplified model, the structured model, and the complex network evolution model. The stochastic theory-based simplified model and structured model are used to describe the impact and contagion effects on the creditor under different circumstances of credit default strength and default loss rate of the debtor [5][6][7][8][9][10]. The method of structural model assumes that the dynamic process of corporate assets depends on a set of common state variables, and that the interfirm default correlation arises from the dynamic evolution of the firm's asset value [9].…”

Section: Introductionmentioning

confidence: 99%

“…The stochastic theory-based simplified model and structured model are used to describe the impact and contagion effects on the creditor under different circumstances of credit default strength and default loss rate of the debtor [5][6][7][8][9][10]. The method of structural model assumes that the dynamic process of corporate assets depends on a set of common state variables, and that the interfirm default correlation arises from the dynamic evolution of the firm's asset value [9]. The simplified model directly models the process of corporate default intensity, and the default correlation is determined by the intensity of the default process, without considering the relationship between the default and the company value.…”

Section: Introductionmentioning

confidence: 99%

Credit Risk Contagion Based on Asymmetric Information Association

2018

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The study of the contagion law of credit risk is very important for financial market supervision. The existing credit risk contagion models based on complex network theory assume that the information between individuals in the network is symmetrical and analyze the proportion of the individuals infected by the credit risk from a macro perspective. However, how individuals are infected from a microscopic perspective is not clear, besides the level of the infection of the individuals is characterized by only two states: completely infected or not infected, which is not realistic. In this paper, a credit risk contagion model based on asymmetric information association is proposed. The model can effectively describe the correlation among individuals with credit risk. The model can analyze how the risk individuals are infected in the network and can effectively reflect the risk contagion degree of the individual. This paper further analyzes the influence of network structure, information association, individual risk attitude, financial market supervision intensity, and individual risk resisting ability on individual risk contagion. The correctness of the model is verified by theoretical deduction and numerical simulation.

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“…Existing contributions focus mostly on the computation of value adjustments (with and without collateralization) in various credit risk models. Counterparty credit risk and valuation adjustments for uncollateralized CDS are studied by Hull and White (2001), Brigo and Chourdakis (2009), Blanchet-Scalliet and Patras (2008), Lipton and Sepp (2009) and Bao et al (2010), among others. Counterparty credit risk for collateralized CDS is discussed in Bielecki et al (2011), Fujii andTakahashi (2011) and Brigo et al (2012).…”

Section: Introductionmentioning

confidence: 99%

Contagion Effects and Collateralized Credit Value Adjustments for Credit Default Swaps

Frey

Rösler

2014

Int. J. Theor. Appl. Finan.

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The paper is concerned with counterparty credit risk management for credit default swaps in the presence of default contagion. In particular, we study the impact of default contagion on credit value adjustments such as the BCCVA (Bilateral Collateralized Credit Value Adjustment) of (Brigo et al. 2012) and on the performance of various collateralization strategies. We use the incomplete-information model of Frey and Schmidt (2012) as vehicle for our analysis. We find that taking contagion effects into account is important for the effectiveness of the strategy and we derive refined collateralization strategies to account for contagion effects.

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Unilateral CVA for CDS in a contagion model with stochastic pre-intensity and interest

Cited by 11 publications

References 6 publications

Reduced-form models of correlated default timing: a systematic literature review

Reduced-form models of correlated default timing: a systematic literature review

Credit Risk Contagion Based on Asymmetric Information Association

Contagion Effects and Collateralized Credit Value Adjustments for Credit Default Swaps

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