Looking at the valuation of a swap when funding costs and counterparty risk are neglected (i.e., when there is a unique risk free discounting curve), it is natural to ask "What is the discounting curve of a swap in the presence of funding costs, counterparty risk and/or collateralization". In...

Looking at the valuation of a swap when funding costs and counterparty risk are neglected (i.e. when there is a unique risk free discounting curve), it is natural to ask "What is the discounting curve of a swap in the presence of funding costs, counterparty risk and/or collateralization?".In...

In this short note we develop a model for discounting.A focus of the model is the discounting, when discount factors cannot be derived from market products. That is, a risk-neutralizing trading strategy cannot be performed.This is the case, when one is in need of a risk-free (default-free)...