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

@inproceedings{Brigo,
author = {Brigo, D and Hvolby, T and Vrins, F},
publisher = {World Scientific Publishing Co.},
title = {Wrong-way risk adjusted exposure: analytical approximations for options in default intensity models},
url = {http://hdl.handle.net/10044/1/58321},
}

RIS format (EndNote, RefMan)

TY  - CPAPER
AB - We examine credit value adjustment (CVA) estimation under wrong-way risk(WWR) by computing the expected positive exposure (EPE) under an equiva-lent measure as suggested in [1], adjusting the drift of the underlying for defaultrisk. We apply this technique to European put and call options and derive theanalytic formulas for EPE under WWR obtained with various approximationsof the drift adjustment. We give the results of numerical experiments basedon 4 parameter sets, and supply figures of the CVA based on both of the sug-gested proxys, comparing with CVA based on a 2D-Monte Carlo scheme andGaussian Copula resampling. We also show the CVA obtained by the formulasfrom Basel III. We observe that the Basel III formula does not account forthe credit-market correlation, while the Gaussian Copula resampling methodestimates a too large impact of this correlation. The two proxies account forthe credit-market correlation, and give results that are mostly similar to the2D-Monte Carlo results.
AU - Brigo,D
AU - Hvolby,T
AU - Vrins,F
PB - World Scientific Publishing Co.
TI - Wrong-way risk adjusted exposure: analytical approximations for options in default intensity models
UR - http://hdl.handle.net/10044/1/58321
ER -