Capturing credit correlation between counterparty and underlying

Kirk Buckley, Sascha Wilkens and Vladimir Chorniy present a semi-analytical approach for calculating the counterparty exposure of credit derivatives contracts conditional on the default of the counterparty, based on a Merton-type asset return model. The approach provides an efficient algorithm for implementing large-scale exposure calculations for portfolios of credit derivatives

The conventional approach to calculating counterparty exposure assumes that the underlying of the derivative and the counterparty credit quality are uncorrelated. There are many cases, however, where this assumption does not necessarily hold. Examples of these cases include emerging market currencies, commodity producers hedging future production and credit derivatives. In this article, we focus on the case of credit derivatives where the underlying reference entities are correlated with the

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

Most read articles loading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here