Pricing Derivative Credit Risk

Credit risk is an important consideration in most financial transactions. As for any other risk, the risk taker requires compensation for the undiversifiable part of the risk taken. In bond markets, for example, riskier issues generally promise investors a higher yield. The same principle also appli...

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Main Author: Ammann, Manuel
Corporate Author: SpringerLink (Online service)
Format: eBook
Language:English
Published: Berlin, Heidelberg Springer Berlin Heidelberg 1999, 1999
Edition:1st ed. 1999
Series:Lecture Notes in Economics and Mathematical Systems
Subjects:
Online Access:
Collection: Springer Book Archives -2004 - Collection details see MPG.ReNa
Summary:Credit risk is an important consideration in most financial transactions. As for any other risk, the risk taker requires compensation for the undiversifiable part of the risk taken. In bond markets, for example, riskier issues generally promise investors a higher yield. The same principle also applies to financial derivatives. Otherwise identical derivative securities will likely have differ­ ent prices if the counterparties are not of the same credit quality. Although this argument seems intuitively convincing, widely used pricing models for financial derivatives do not incorporate credit risk effects. This research monograph analyzes the effect of credit risk on financial derivatives prices. Credit risk can affect derivatives prices in a variety of ways. First, financial derivatives can be subject to counterparty default risk. Second, a derivative can be written on a security which is subject to credit risk, such as a corporate bond. Third, the credit risk itself can be the un­ derlying of a derivative instrument. The text focuses on valuation models which take into account counterparty risk but also addresses the other two valuation problems
Physical Description:XII, 232 p. 13 illus online resource
ISBN:9783662223307