Imperial College London

ProfessorDamianoBrigo

Faculty of Natural SciencesDepartment of Mathematics

Chair in Mathematical Finance
 
 
 
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Contact

 

damiano.brigo

 
 
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Location

 

805Weeks BuildingSouth Kensington Campus

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Summary

 

Publications

Citation

BibTex format

@article{Brigo:2013:10.1111/j.1467-9965.2012.00520.x,
author = {Brigo, D and Capponi, A and Pallavicini, A},
doi = {10.1111/j.1467-9965.2012.00520.x},
journal = {Mathematical Finance},
pages = {1252146--1252146},
title = {ARBITRAGE-FREE BILATERAL COUNTERPARTY RISK VALUATION UNDER COLLATERALIZATION AND APPLICATION TO CREDIT DEFAULT SWAPS},
url = {http://dx.doi.org/10.1111/j.1467-9965.2012.00520.x},
volume = {24},
year = {2013}
}

RIS format (EndNote, RefMan)

TY  - JOUR
AB - We develop an arbitrage-free valuation framework for bilateral counterparty risk, where collateral is included with possible rehypothecation. We show that the adjustment is given by the sum of two option payoff terms, where each term depends on the netted exposure, i.e., the difference between the on-default exposure and the predefault collateral account. We then specialize our analysis to credit default swaps (CDS) as underlying portfolios, and construct a numerical scheme to evaluate the adjustment under a doubly stochastic default framework. In particular, we show that for CDS contracts a perfect collateralization cannot be achieved, even under continuous collateralization, if the reference entity’s and counterparty’s default times are dependent. The impact of rehypothecation, collateral margining frequency, and default correlation-induced contagion is illustrated with numerical examples.
AU - Brigo,D
AU - Capponi,A
AU - Pallavicini,A
DO - 10.1111/j.1467-9965.2012.00520.x
EP - 1252146
PY - 2013///
SN - 0960-1627
SP - 1252146
TI - ARBITRAGE-FREE BILATERAL COUNTERPARTY RISK VALUATION UNDER COLLATERALIZATION AND APPLICATION TO CREDIT DEFAULT SWAPS
T2 - Mathematical Finance
UR - http://dx.doi.org/10.1111/j.1467-9965.2012.00520.x
UR - http://onlinelibrary.wiley.com/doi/10.1111/j.1467-9965.2012.00520.x/abstract
UR - http://hdl.handle.net/10044/1/18325
VL - 24
ER -