This paper develops a new framework for the design of collateral requirements in a centrally cleared market. Clearing members post collateral - initial margins and default funds - to increase their pledgeable income, thereby credibly committing to risk management. We show that initial margins...

We propose a structural model for the valuation of defaultable securities of a firm which models the effect of deliberate misreporting done by insiders in the firm and unobserved by others. We derive exact formulas for equity and bond prices and approximate expressions for the conditional...

We develop a fixed income portfolio framework capturing the exponential decay of contagious intensities between successive default events. We show that the value function of the control problem is the classical solution to a recursive system of second-order uniformly parabolic...

We review different theoretical and empirical approaches for measuring the impact of liquidity on CDS prices. We start by reduced form models incorporating liquidity as an additional discount rate. We review Chen, Fabozzi and Sverdlove (2008) and Buhler and Trapp (2006, 2008), adopting different...

We analyze the market price of counterparty risk and develop an arbitrage-free pricing valuation framework, inclusive of collateral mitigation. We show that the adjustment is given by the sum of option payoff terms, depending on the netted exposure, i.e. the difference between the on-default...