Economics and Finance

    

Derivative Valuation and Collateralization

Authors: David Lee

This paper presents a model that characterizes a collateral process directly based on Credit Support Annex (CSA). The model is devised that allows for collateralization adhering to bankruptcy laws. We find evidence that there is a strong linkage between market and credit risk. Our study suggests that banks and regulators need to think about an integrated framework to capture interactions of these two types of risk. This requires all profits and losses are gauged in a consistent way across risk types as they tend to be driven by the same economic factors.

Comments: 15 Pages.

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Submission history

[v1] 2022-03-21 10:05:04

Unique-IP document downloads: 225 times

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