Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/202549 
Authors: 
Year of Publication: 
2018
Publisher: 
ZBW – Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
The one-side defaultable financial derivatives valuation problems have been studied extensively, but the valuation of bilateral derivatives with asymmetric credit qualities is still lacking convincing mechanism. This paper presents an analytical model for valuing derivatives subject to default by both counterparties. The default-free interest rates are modeled by the Market Models, while the default time is modeled by the reduced-form model as the first jump of a time-inhomogeneous Poisson process. All quantities modeled are market-observable. The closed-form solution gives us a better understanding of the impact of the credit asymmetry on swap value, credit value adjustment, swap rate and swap spread.
Subjects: 
bilateral defaultable derivatives
credit asymmetry
market models
Black model
LIBOR market model
reduced-form model
credit valuation adjustment
swap spread
JEL: 
C52
C63
D46
G12
G13
Document Type: 
Working Paper

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