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Joined: August 26th, 2011

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Tim Xiao wrote a new blog post titled An Accurate Solution for Credit Value Adjustment (CVA) and Wrong Way Risk

This paper presents a new framework for credit value adjustment (CVA) that is a relatively new area of financial derivative modeling and trading. In contrast to previous studies, the model relies on the probability distribution of a default time/jump rather than the default time itself, as the default time is usually inaccessible. As such, the model can achieve a high order of accuracy with a relatively easy implementation. We find that the prices of risky contracts are normally determined via backward induction when their payoffs could be positive or negative. Moreover, the model can...
(2129 days ago)

Tim Xiao has joined MoneyScience (2764 days ago)