Repository logo
  • Log In
    Log in via Symplectic to deposit your publication(s).
Repository logo
  • Communities & Collections
  • Research Outputs
  • Statistics
  • Log In
    Log in via Symplectic to deposit your publication(s).
  1. Home
  2. Faculty of Natural Sciences
  3. Faculty of Natural Sciences
  4. Impact of Multiple Curve Dynamics in Credit Valuation Adjustments under Collateralization
 
  • Details
Impact of Multiple Curve Dynamics in Credit Valuation Adjustments under Collateralization
File(s)
tmp_QF_hjm_collateral_Imperial.pdf (659.72 KB)
Accepted version
Author(s)
Bormetti, G
Brigo, D
Francischello, M
Pallavicini, A
Type
Working 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), and the related collateralized valuation measure, can be helpful in defining the key market rates underlying the multiple interest rate curves that characterize current interest rate markets. A key point is that spot Libor rates are to be treated as market primitives rather than being defined by no-arbitrage relationships. We formulate a consistent realistic dynamics for the different rates emerging from our analysis and compare the resulting model performances to simpler models used in the industry. We include the often neglected margin period of risk, showing how this feature may increase the impact of different rates dynamics on valuation. We point out limitations of multiple curve models with deterministic basis considering valuation of particularly sensitive products such as basis swaps. We stress that a proper wrong way risk analysis for such products requires a model with a stochastic basis and we show numerical results confirming this fact.
Date Issued
2018-01-01
URI
http://hdl.handle.net/10044/1/51936
Copyright Statement
© The authors
Identifier
http://arxiv.org/abs/1507.08779v2
Subjects
q-fin.PR
q-fin.CP
60J75, 91B70
Notes
arXiv admin note: text overlap with arXiv:1304.1397
About
Spiral Depositing with Spiral Publishing with Spiral Symplectic
Contact us
Open access team Report an issue
Other Services
Scholarly Communications Library Services
logo

Imperial College London

South Kensington Campus

London SW7 2AZ, UK

tel: +44 (0)20 7589 5111

Accessibility Modern slavery statement Cookie Policy

Built with DSpace-CRIS software - Extension maintained and optimized by 4Science

  • Cookie settings
  • Privacy policy
  • End User Agreement
  • Send Feedback