Wrong Way Risk corrections to CVA in CIR reduced-form models
Fabio Antonelli,
Alessandro Ramponi,
Sergio Scarlatti
Abstract:In this paper we provide an efficient methodology to compute the credit value adjustment of a European contingent claim subject to some default event concerning the issuer solvability, when the underlying and the default event are correlated. In particular, in a Black and Scholes market/CIR intensity-default model, we consider a second order expansion around the origin of a vulnerable call option with respect to a correlation parameter $$\rho$$
ρ
, which may be used to describ… Show more
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