In this paper we develop a tractable structural model with analytical default probabilities depending on some dynamics parameters, and we show how to calibrate the model using a chosen number of Credit Default Swap (CDS) market quotes. We essentially show how to use structural models with a...

We compare two different bilateral counterparty valuation adjustment (BVA) formulas. The first formula is an approximation and is based on subtracting the two unilateral Credit Valuation Adjustment (CVA)'s formulas as seen from the two different parties in the transaction. This formula is only a...

In this paper we focus on a fundamental practical issue regarding the bilateral counterparty risk adjustment. The past literature assumes that, at the moment of the first default, a risk-free closeout amount will be used. The closeout amount is the net present value of the residual deal which is...

This work focuses on the swaptions automatic cascade calibration algorithm (CCA) for the LIBOR Market Model (LMM) first appeared in Brigo and Mercurio (2001). This method induces a direct analytical correspondence between market swaption volatilities and LMM parameters, and allows for a perfect...

In this work we consider three problems of the standard market approach to the pricing of credit index options: the definition of the index spread is not valid in general, the payoff considered leads to a pricing which is not always defined, and the candidate numeraire to define a pricing...

With the rapid development of the credit derivatives market, efficient pricing of default has become an extremely important issue for the credit risk management of banks and other investors. We consider here some of the opportunities and problems that the development of this market poses to...