Impact of Multiple Curve Dynamics in Credit Valuation Adjustments
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Accepted version
Published version
Author(s)
Bormetti, G
Brigo, D
Francischello, M
Pallavicini, A
Type
Conference Paper
Abstract
We present a detailed analysis of interest rate derivatives valuation under
credit risk and collateral modeling. We show how the credit and collateral extended
valuation framework in Pallavicini et al (2011) can be helpful in defining the key
market rates underlying the multiple interest rate curves that characterize current
interest rate markets. We introduce the collateralized valuation measures and formulate
a consistent realistic dynamics for the rates emerging from our analysis. We
point out limitations of multiple curve models with deterministic basis considering
valuation of particularly sensitive products such as basis swaps.
credit risk and collateral modeling. We show how the credit and collateral extended
valuation framework in Pallavicini et al (2011) can be helpful in defining the key
market rates underlying the multiple interest rate curves that characterize current
interest rate markets. We introduce the collateralized valuation measures and formulate
a consistent realistic dynamics for the rates emerging from our analysis. We
point out limitations of multiple curve models with deterministic basis considering
valuation of particularly sensitive products such as basis swaps.
Date Issued
2016-12-31
Date Acceptance
2016-10-04
Citation
Innovations in Derivatives Markets. Fixed Income Modeling, Valuation Adjustments, Risk Management, and Regulation, 2016, pp.251-266
ISBN
9783319334455
ISSN
2194-1009
Publisher
Springer
Start Page
251
End Page
266
Journal / Book Title
Innovations in Derivatives Markets. Fixed Income Modeling, Valuation Adjustments, Risk Management, and Regulation
Copyright Statement
This chapter is distributed under the terms of the Creative Commons Attribution
4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, duplication,
adaptation, distribution and reproduction in any medium or format, as long as you give
appropriate credit to the original author(s) and the source, a link is provided to the Creative Commons
license and any changes made are indicated.
The images or other third party material in this chapter are included in the work’s Creative
Commons license, unless indicated otherwise in the credit line; if such material is not included
in the work’s Creative Commons license and the respective action is not permitted by statutory
regulation, users will need to obtain permission from the license holder to duplicate, adapt or
reproduce the material.
4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, duplication,
adaptation, distribution and reproduction in any medium or format, as long as you give
appropriate credit to the original author(s) and the source, a link is provided to the Creative Commons
license and any changes made are indicated.
The images or other third party material in this chapter are included in the work’s Creative
Commons license, unless indicated otherwise in the credit line; if such material is not included
in the work’s Creative Commons license and the respective action is not permitted by statutory
regulation, users will need to obtain permission from the license holder to duplicate, adapt or
reproduce the material.
License URL
Source
Challenges in Derivatives Markets
Publication Status
Published
Start Date
2015-03-30
Coverage Spatial
Munich