Counterparty Credit Risk and Wrong Way Risk; a Least Square Montecarlo Approach

Proceedings of VI MACI 2017

4 Pages Posted: 28 Apr 2021

See all articles by Peter Joe Silva

Peter Joe Silva

CRISIL GR&A

Hernan Reisin

Universidad del CEMA

Manuel Maurette

Universidad Torcuato Di Tella - Finance; Universidad del CEMA

Date Written: May 19, 2017

Abstract

This article presents the use of Least Squares Monte Carlo (LSMC) and Copula methodology for derivative option pricing including Counterparty Credit Risk. Since the financial crisis of 2008, the financial industry and the regulatory authorities began adjust the price of derivatives due to counterparty risk. Our purpose is pricing an American option using LSMC methodology and including the so-called Wrong Way Risk, through copula methodology, to represent the interaction between market and credit risk.

Keywords: Counterparty Credit Risk, Least Squares Monte Carlo, Wrong Way Risk, CVA, Copula

JEL Classification: G12, G13

Suggested Citation

Silva, Peter Joe and Reisin, Hernan and Maurette, Manuel, Counterparty Credit Risk and Wrong Way Risk; a Least Square Montecarlo Approach (May 19, 2017). Proceedings of VI MACI 2017, Available at SSRN: https://ssrn.com/abstract=3829786 or http://dx.doi.org/10.2139/ssrn.3829786

Peter Joe Silva (Contact Author)

CRISIL GR&A ( email )

India

Hernan Reisin

Universidad del CEMA ( email )

Córdoba 374
Buenos Aires, 1044
Argentina

Manuel Maurette

Universidad Torcuato Di Tella - Finance ( email )

United States

Universidad del CEMA ( email )

Córdoba 374
Buenos Aires, 1044
Argentina

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