-
An Accurate Solution for Credit Valuation Adjustment (CVA) and Wrong Way Risk
- Author(s):
- Tim Xiao (see profile)
- Date:
- 2015
- Group(s):
- Business Management, Scholarly Communication
- Subject(s):
- Economics, Knowledge management, Commercial statistics
- Item Type:
- Article
- Tag(s):
- asset pricing, credit value adjustment, wrong way risk, credit risk modeling, default time approach, Business data
- Permanent URL:
- http://dx.doi.org/10.17613/szjz-g991
- Abstract:
- This paper presents a Least Square Monte Carlo approach for accurately calculating credit value adjustment (CVA). In contrast to previous studies, the model relies on the probability distribution of a default time/jump rather than the default time itself, as the default time is usually inaccessible. As such, the model can achieve a high order of accuracy with a relatively easy implementation. We find that the valuation of a defaultable derivative is normally determined via backward induction when their payoffs could be positive or negative. Moreover, the model can naturally capture wrong or right way risk.
- Metadata:
- xml
- Published as:
- Journal article Show details
- Pub. DOI:
- https://doi.org/10.3905/jfi.2015.25.1.084
- Publisher:
- Pageant Media US
- Pub. Date:
- 2015-5-23
- Journal:
- Journal of Fixed Income
- Volume:
- 25
- Issue:
- 1
- Page Range:
- 84 - 95
- ISSN:
- 1074-1240,2168-8524
- Status:
- Published
- Last Updated:
- 4 years ago
- License:
- All-Rights-Granted