In the absence of a universally accepted procedure for the credit valuation adjustment (CVA) calculation, we compare a number of different bilateral counterparty valuation adjustment (BVA) formulas. First we investigate the impact of the choice of the closeout convention used in the formulas....

Reducing the number of factors in a model by reducing the rank of a correlation matrix is a problem that often arises in finance, for instance in pricing interest rate derivatives with Libor market models. A simple iterative algorithm for correlation rank reduction is introduced, the eigenvalue...

We consider the distributional difference in forward swap rates from the LIBOR market model (LFM) and the swap market model (LSM), the two fundamental market models for interest-rate derivatives. We explain how the Kullback-Leibler information (KLI) can be used to measure the distance of a given...

In this paper we investigate implied volatility patterns in the Shifted Square Root Diffusion (SSRD) model as functions of the model parameters. We begin by recalling the Credit Default Swap (CDS) options market model that is consistent with a market Black-like formula, thus introducing a notion...

We introduce the two-dimensional shifted square-root diffusion (SSRD) model for interest-rate and credit derivatives with (positive) stochastic intensity. The SSRD is the unique explicit diffusion model allowing an automatic and separated calibration of the term structure of interest rates and...

We extend the common Poisson shock framework reviewed for example in Lindskog and McNeil [15] to a formulation avoiding repeated defaults, thus obtaining a model that can account consistently for single name default dynamics, cluster default dynamics and default counting process. This approach...