Counterparty Risk on a CDS in a Markov Chain Copula Model with Joint Defaults

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Subfields: Finance

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Counterparty Risk and Funding: A Tale of Two Puzzles (2014, background): “In this regard, the reader is referred to the literature on large counterparty, insiders and pricing impact; see for instance Cvitanic and Ma (1996). Regarding counterparty risk, another advantage of BSDEs is that, since they are a “nonlinear pricing tool”, they are well-suited to deal with with rec”
Optimal investment under multiple defaults risk: a BSDE-decomposition approach (2011, result): “ (θk,ιk,ℓk, ιk+1,ℓk+1) = −1 + ℓk+1/P i,k θ− k+1 (θk,ιk,ℓk), meaning that P i,k+1 θk+1 (θk+1,ιk+1, ℓk+1) = ℓk+1, when ιk+1 = i. This model is compatible with several ones in the literature (see, e.g., [2, 3]), and we shall focus in the last section on this example for numerical illustrations in the c”