Credit Default Swap Valuation with Counterparty Risk

Kyoto Economics Journal, Forthcoming

27 Pages Posted: 9 May 2005

See all articles by Yue Kuen Kwok

Yue Kuen Kwok

Hong Kong University of Science & Technology - Department of Mathematics

Seng Yuen Leung

Independent

Abstract

Using the reduced form framework with interdependent default correlation, we perform valuation of credit default swap with counterparty risk. The interdependent default risk structure between the protection buyer, protection seller and the reference entity in a credit default swap are characterized by their correlated default intensities, where the default intensity of one party increases when the default of another party occurs. We explore how settlement risk and replacement cost affect the swap rate in credit default swaps.

Keywords: counterparty risk, contagious default, intensity model, credit default swap

JEL Classification: G13

Suggested Citation

Kwok, Yue Kuen and Leung, Seng Yuen, Credit Default Swap Valuation with Counterparty Risk. Kyoto Economics Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=717383

Yue Kuen Kwok (Contact Author)

Hong Kong University of Science & Technology - Department of Mathematics ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Seng Yuen Leung

Independent ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
675
Abstract Views
4,199
Rank
74,404
PlumX Metrics