Abstract
Based on the framework of [7], we discuss pricing bilateral counterparty risk of CDS, where each individual default intensity is modeled by a shifted CIR process with jump (JCIR++), and the correlation between the default times is modeled by a copula function. We present a semi-analytical formula for pricing bilateral counterparty risk of CDS, which is more convenient to compute through calculating multiple numerical integration or using Monte-Carlo simulation without simulating default times. Moreover, we obtain simpler formulae under FGM copulas, Bernstein copulas and CA,B copulas, which can be applied for speeding up the computation and reducing the pricing error. Numerical results under FGM copulas and CA,B copulas show that our method performs better both in computation speed and accuracy.
Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
