Work

Counterparty Risk and the Pricing of Defaultable Securities

Year: 2001

Type: article

Abstract: ABSTRACT Motivated by recent financial crises in East Asia and the United States where the downfall of a small number of firms had an economy‐wide impact, this paper generalizes existing reduced‐form models to include default intensities dependent on the default of a counterparty. In this model, firms have correlated defaults due not only to an exposure to common risk factors, but also to firm‐specific risks that are termed “counterparty risks.” Numerical examples illustrate the effect of counterparty risk on the pricing of defaultable bonds and credit derivatives such as default swaps.

Source: The Journal of Finance

DOI: 10.1111/0022-1082.00389

Authors: Robert A. Jarrow, Fan Yu

Institutions: Boston University, Baruch College, University of Illinois Urbana-Champaign, Georgetown University, University of California, Irvine, Cornell University

Language: English

Topic: Credit Risk and Financial Regulations

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3122906726

FWCI: 24.93

Cites: 40

Cited by: 679

Related to: 10