Imperial College London
Alternate

ProfessorDamianoBrigo

Faculty of Natural Sciences, Department of Mathematics

Chair in Mathematical Finance
 
 
 
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Contact

 

damiano.brigo CV

 
 
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Location

 

805Weeks BuildingSouth Kensington Campus

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Summary

 

Publications

Citation

BibTex format

@article{BRIGO:2009,
author = {BRIGO, DAMIANO and CHOURDAKIS, KYRIAKOS},
journal = {International Journal of Theoretical and Applied Finance},
pages = {1007--1026},
title = {COUNTERPARTY RISK FOR CREDIT DEFAULT SWAPS: IMPACT OF SPREAD VOLATILITY AND DEFAULT CORRELATION},
volume = {12},
year = {2009}
}
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RIS format (EndNote, RefMan)

TY  - JOUR
AB  - We consider counterparty risk for Credit Default Swaps (CDS) in presence of correlation between default of the counterparty and default of the CDS reference credit. Our approach is innovative in that, besides default correlation, which was taken into account in earlier approaches, we also model credit spread volatility. Stochastic intensity models are adopted for the default events, and defaults are connected through a copula function. We find that both default correlation and credit spread volatility have a relevant impact on the positive counterparty-risk credit valuation adjustment to be subtracted from the counterparty-risk free price. We analyze the pattern of such impacts as correlation and volatility change through some fundamental numerical examples, analyzing wrong-way risk in particular. Given the theoretical equivalence of the credit valuation adjustment with a contingent CDS, we are also proposing a methodology for valuation of contingent CDS on CDS.
AU  - BRIGO,DAMIANO
AU  - CHOURDAKIS,KYRIAKOS
EP  - 1026
PY  - 2009///
SP  - 1007
TI  - COUNTERPARTY RISK FOR CREDIT DEFAULT SWAPS: IMPACT OF SPREAD VOLATILITY AND DEFAULT CORRELATION
T2  - International Journal of Theoretical and Applied Finance
VL  - 12
ER  -
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