Evaluation of credit value adjustment with a random recovery rate via a Lévy default model
|Pai, Jeffery (Warren Centre for Actuarial Studies and Research) Shapiro, Arnold (Warren Centre for Actuarial Studies and Research) Wang, Xikui (Statistics)
|Hao, Xuemiao (Warren Centre for Actuarial Studies and Research)
|Master of Science (M.Sc.)
|Credit value adjustment (CVA), as a quantified measure of counterparty credit risk for financial derivatives, is becoming an increasingly important concept for the financial industry. In this thesis, we evaluate CVA for an interest rate swap via a new structural default model. In our model, the asset value of a company is assumed to follow meromorphic Lévy processes with infinite jumps but finite variation. One important advantage of our model is that we are able to assume a random recovery rate which depends on default severity. Compared with the case with a fixed recovery rate, we show that the effect on CVA with a random recovery rate is significant.
|Credit Value Adjustment
|Evaluation of credit value adjustment with a random recovery rate via a Lévy default model