Data:    https://finpricing.com/lib/IrCurveIntroduction.htmlAbstractAfter the credit crisis, credit valuation adjustment (CVA) has become a significant contributor to the daily P&L of trading books.  As a result, it is crucial for banks to closely monitor the risk associated with CVA and set risk limit in place for a robust oversight and risk management framework. This paper presents a new approach for accurately calculating credit value adjustment (CVA). The model can achieve a high order of accuracy with a relatively easy implementation. Moreover, the model can naturally capture wrong or right way risk.

Tim XiaoData:    https://finpricing.com/lib/IrCurve.htmlThis paper presents a new model for pricing OTC derivatives subject to collateralization. The model is used to measure the exposure for derivatives and securities. The exposures are used for both regulatory capital calculation and internal risk management purposes. The regulatory capital affects the operating cost of the Bank trading activities. Using a unique dataset, we find empirical evidence that both collateral arrangement and credit risk together can sufficiently explain unsecured credit costs. This finding suggests that failure to properly account for collateralization may result in significant mispricing of derivatives. We also empirically gauge the impact of collateral agreements on risk measurements. Our findings indicate that there are important interactions between market and credit risk.

Tim XiaoData: https://finpricing.com/lib/IrBasisCurve.htmlDerivative products bear credit risk where multiple defaults may be dependent and correlated. To mitigate credit risk, collateralization is introduced. This article presents a new model for valuing financial contracts subject to credit risk and collateralization. We show that default dependency has a significant impact on asset pricing. In fact, correlated default risk is one of the most pervasive threats in financial markets. We also show that a fully collateralized swap is equivalent to a risk-free one, but a fully collateralized CDS is not. That means full collateralization cannot eliminate counterparty risk completely in the CDS market.