Title: Bilateral Collateralized CVA and DVA for Rates and Credit
Abstract: In this chapter, the authors develop some applications of the bilateral collateralized CVA and DVA equation. The chapter focuses on interest rate and credit derivatives, and also on interest rate swaps (IRS). It highlights the dependency of the total collateral-inclusive bilateral (credit and debit) valuation adjustment (CBVA) on model parameters and market data. The chapter examines the impact of margining frequency, re-hypothecation, correlation parameters, and credit spread volatilities. It provides applications to interest rate swaps, where collateralization is found to be quite effective in reducing counterparty risk. It shows the detailed contagion calculations that are necessary to compute CBVA for credit default swaps (CDS). The chapter discusses the credit default swaps, and draws a conclusion from examples highlighting that collateral is quite effective in reducing counterparty risk.
Publication Year: 2013
Publication Date: 2013-03-15
Language: en
Type: other
Indexed In: ['crossref']
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