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Unilateral Counterparty Risk Valuation for CDS Under a Regime Switching Interacting Intensities Model

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  • Yinghui Dong
  • Xue Liang
  • Guojing Wang

Abstract

We consider the credit valuation adjustment (CVA) of credit default swap under an interacting intensities model. The default intensities of the protection seller and the reference entity are both influenced by an external shock event. The arrival of the shock event is a regime switching Poisson process, which is a special case of Cox processes. We give the explicit formula for the CVA of the credit and examine the regime switching effect on the premium and the CVA. Copyright Springer Science+Business Media, LLC. 2012

Suggested Citation

  • Yinghui Dong & Xue Liang & Guojing Wang, 2012. "Unilateral Counterparty Risk Valuation for CDS Under a Regime Switching Interacting Intensities Model," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 19(4), pages 391-415, November.
    • Handle: RePEc:kap:apfinm:v:19:y:2012:i:4:p:391-415
    DOI: 10.1007/s10690-012-9155-y
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    7. Robert A. Jarrow & Fan Yu, 2008. "Counterparty Risk and the Pricing of Defaultable Securities," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 20, pages 481-515, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Masaaki Kijima & Chi Chung Siu, 2014. "Credit-Equity Modeling Under A Latent Lévy Firm Process," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 17(03), pages 1-41.

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