Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/203447
Authors: 
Xiao, Tim
Year of Publication: 
2018
Abstract: 
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 pervasive threats in financial markets. We also show that a fully collateralized CDS is not equivalent to a risk-free one. In other words, full collateralization cannot eliminate counterparty risk completely in the CDS market.
Subjects: 
valuation model
credit risk modeling
collateralization
correlation
CDS
Document Type: 
Working Paper

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