TY  - CHAP
AB  - We set out, in this paper, to extend the Das and Sundaram (2000) model as a means of simultaneously considering correlated default risk structure and counter-party risk. The multinomial model established by Kamrad and Ritchken (1991) is subsequently modified in order to facilitate the development of a computational algorithm for valuing two types of active credit derivatives, credit-spread options and default baskets. From our numerical examples, we find that along with the correlated default risk, the existence of counter-party risk results in a substantially lower valuation of credit derivatives. In addition, we find that different settings of the term structure of interest rate volatility also have a significant impact on the value of credit derivatives.
VL  - 23
SN  - 978-1-84950-441-6, 978-0-7623-1345-7/0196-3821
DO  - 10.1016/S0196-3821(06)23007-7
UR  - https://doi.org/10.1016/S0196-3821(06)23007-7
AU  - Chang Chuang-Chang
AU  - Jih-Chieh Yu
ED  - Andrew H. Chen
PY  - 2006
Y1  - 2006/01/01
TI  - A Spread-Based Model for the Valuation of Credit Derivatives with Correlated Defaults and Counter-Party Risks
T2  - Research in Finance
T3  - Research in Finance
PB  - Emerald Group Publishing Limited
SP  - 193
EP  - 220
Y2  - 2024/04/19
ER  -