We introduce the general arbitrage-free valuation framework for counterparty risk adjustments in presence of bilateral default risk, including default of the investor. We illustrate the symmetry in the valuation and show that the adjustment involves a long position in a put option plus a short position in a call option, both with zero strike and written on the residual net value of the contract...

Financial instruments traded in the market, very often, are subject to default risk. It is well known that the default risks of different instruments are dependent on each other. In this paper, we consider a portfolio selection problem where assets are exposed to dependent default risk. Two different models are proposed to model the default mechanism: the Threshold Model and the Independence Mo...

The Credit Risk+ model is one of the industry standards for estimating the credit default risk for a portfolio of credit loans. The natural parameterization of this model requires the default probability to be apportioned using a number of (non-negative) factor loadings. However, in practice only default correlations are often available but not the factor loadings. In this paper we investigate ...

As reported, most DC pension scheme participants simply follow proposed defaults, even though they have the freedom to choose. Consequently, default designs have dramatic impacts on individuals’retirement saving outcomes. Given the fact that the default design matters, this paper evaluates contribution default designs to help DC plan participants to save and invest wisely. The proposed defaults...

As global public health events and regional conflicts have greater influence on supply chains nowadays, supplier default in procurement becomes more common practice. However, there is less research portfolio purchasing decisions the case of fixed-term contract default. This paper focuses optimal decision buyers by using a combination contracts spot transactions, which beneficial extension class...

Credit risk is quantified by the loss distribution due to unexpected changes in the credit quality of the counterparty in a financial contract. Default correlation risk refers to the risk that a bundle of risky obligors may default together. To understand the clustering phenomena in correlated defaults, we consider credit contagion models which describe the propagation of financial distress fro...

In this paper we present a modelling framework for portfolio credit risk which incorporates the dependence between risk-free interest-rates and the default loss process. The contribution in this approach is that – besides the traditional diffusionbased covariation between loss intensities and interest-rates – a direct dependence between interest-rates and the loss process is allowed, in particu...

Portfolio credit derivatives are contracts that are tied to an underlying portfolio of defaultable reference assets and have payoffs that depend on the default times of these assets. The hedging of credit derivatives involves the calculation of the sensitivity of the contract value with respect to changes in the credit spreads of the underlying assets, or, more generally, with respect to parame...