Abstract
An efficient method for valuing credit derivatives based on three entities is developed in an affine framework. This includes interdependence of market and credit risk, joint credit migration and counterparty default risk of three firms. As an application we provide closed form expressions for the joint distribution of default times, default correlations, and default swap spreads in the presence of counterparty default risk.
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Vienna Institute of Finance is funded by WWTF (Vienna Science and Technology Fund).
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Chen, L., Filipović, D. Credit Derivatives in an Affine Framework. Asia-Pacific Finan Markets 14, 123–140 (2007). https://doi.org/10.1007/s10690-007-9055-8
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DOI: https://doi.org/10.1007/s10690-007-9055-8