Abstract
This paper is a summary how to price a derivative product, in the context of fear of default due to the financial crisis. We explain how zero-coupon bond curves are built; we explain how to price a collateralized deal with the possibility of two choices of collateral to post; we explain how to compute both the unilateral and the bilateral Credit Valuation Adjustment (CVA). We introduce notions of Wrong-Way Risk (WWR) and Right-Way Risk (RWR). As application we provide some simulation results on the Interest Rate Swap (IRS) contract. Computations are performed in Monte Carlo.
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