Counterparty risk valuation for CDS

Details Counterparty risk valuation for CDS Counterparty risk valuation for CDS

2008-07-02

arxiv.org/abs/0807.0309v1

Economy

Quantitative Finance

Pricing of Securities

Scientific paper

The valuation of counterparty risk for single name credit derivatives requires the computa- tion of joint distributions of default times of two default-prone entities. For a Merton-type model, we derive some formulas for these joint distribu- tions. As an application, closed formulas for counterparty risk on a CDS or for a first-to-default swap on two underlyings are obtained.

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