Regulatory changes are increasing the importance of collateral agreements and credit issues in over-the-counter derivatives transactions. This paper considers the nature of derivatives collateral agreements and examines the impact of collateral agreements, two-sided credit risk, funding costs,...

Using the criteria of the rating agencies, the authors tested how wide the AAA tranches created from residential mortgages can be. They found that the AAA ratings assigned to ABSs were not totally unreasonable but that the AAA ratings assigned to tranches of Mezz ABS CDOs cannot be justified

The authors propose a simple model for incorporating wrong-way and right-way risk into the Monte Carlo simulation that is used to calculate credit value adjustment (CVA). The model assumes a relationship between the hazard rate of a counterparty and variables whose values are generated, or can...

A company's credit default swap spread is the cost per annum for protection against a default by the company. In this paper we analyze data on credit default swap spreads collected by a credit derivatives broker. We first examine the relationship between credit default spreads and bond yields...