Artikel
Pricing a collateralized derivative trade with a funding value adjustment
The 2008 credit crisis changed the manner in which derivative trades are conducted. One of these changes is the posting of collateral in a trade to mitigate the counterparty credit risk. Another is the realization that banks are not risk-free and, as a result, cannot borrow at the risk-free rate any longer. The latter led banks to introduced the controversial adjustment to derivative prices, known as a funding value adjustment (FVA), which is interlinked with the posting of collateral. In this paper, we extend the Cox, Ross and Rubinstein (CRR) discrete-time model to include collateral and FVA. We prove that this derived model is a discrete analogue of Piterbarg's partial differential equation (PDE), which describes the price of a collateralized derivative. The fact that the two models coincide is also verified by numerical implementation of the results that we obtain. Full article
- Sprache
-
Englisch
- Erschienen in
-
Journal: Journal of Risk and Financial Management ; ISSN: 1911-8074 ; Volume: 8 ; Year: 2015 ; Issue: 1 ; Pages: 17-42 ; Basel: MDPI
- Klassifikation
-
Wirtschaft
Model Construction and Estimation
Asset Pricing; Trading Volume; Bond Interest Rates
Forecasting Models; Simulation Methods
Financial Crises
- Thema
-
collateral
Cox
Ross and Rubinstein model
CSA
FVA
ISDA
Piterbarg model
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Hunzinger, Chadd B.
Labuschagne, Coenraad C. A.
- Ereignis
-
Veröffentlichung
- (wer)
-
MDPI
- (wo)
-
Basel
- (wann)
-
2015
- DOI
-
doi:10.3390/jrfm8010017
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:45 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Artikel
Beteiligte
- Hunzinger, Chadd B.
- Labuschagne, Coenraad C. A.
- MDPI
Entstanden
- 2015
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