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The Valuation of Interest Rate Swap with Bilateral Counterparty Risk
- Author(s):
- Tim Xiao (see profile)
- Date:
- 2020
- Group(s):
- Business Management
- Subject(s):
- Economics
- Item Type:
- Article
- Tag(s):
- defaultable interest rate swap, bilateral defaultable claim, credit asymmetry, market models
- Permanent URL:
- http://dx.doi.org/10.17613/jfsg-b742
- Abstract:
- This paper presents an analytical model for valuing interest rate swaps, subject to bilateral counterparty credit risk. The counterparty defaults are modeled by the reduced-form model as the first jump of a time-inhomogeneous Poisson process. All quantities modeled are market-observable. The closed-form solution gives us a better understanding of the impact of the credit asymmetry on swap value, credit value adjustment, swap rate and swap spread.
- Metadata:
- xml
- Status:
- Published
- Last Updated:
- 3 years ago
- License:
- All-Rights-Granted
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